As a first time home buyer, you may have come across the term “escrow” and are wondering what it is. Escrow is when a third party holds on to something of value during a transaction. In regards to a home purchase, being “in escrow” typically happens after your offer on a home has been accepted by the seller.
The escrow company acts as a neutral third party and is responsible for holding onto all pertinent documentation related to the home purchase, as well as disbursing funds when necessary. Once everything is in order and all parties have signed off on the purchase, the keys to the home will be released to the buyer and the transaction is complete.
How Escrow Works
Once your offer has been accepted, you will then work with a lender to get pre-approved for a loan. Once you are pre-approved, you will then work with a real estate agent to finalize all the paperwork needed for the sale. Once all the paperwork is signed, the escrow company will hold onto everything until closing.
The Purpose of Escrow
The main purpose of escrow is to protect both the buyer and the seller. This is because all the money and paperwork exchanged in a real estate transaction will be handled by a neutral third party. That way, both parties can be sure that everything is being handled fairly.
What Happens at Closing?
Closing is when the sale of the home is finalized and the keys are handed over to the new homeowner. Before closing can happen, the escrow company will make sure that everything has been taken care of such as paying off any outstanding debts on the property and making sure that the title has been transferred over to the new homeowner.
As a first time home buyer, escrow may seem like a daunting task but it is actually there to protect you. Remember that escrow is just a third party holding onto something of value during a transaction and its main purpose is to make sure that both parties are being treated fairly. If you have any questions about escrow, be sure to ask your real estate agent or lender.