Escrow: Now What?
Congratulations, you are on your way to owning your very own home! Follow these suggestions (and the advice of your Realtors®) so that escrow and settlement with go as smooth as possible.
If you are financing your home purchase, you will be asked for a down payment on the home you are purchasing. You can choose to put down as much or as little as you want (depending on your mortgage), but remember, the more you put down toward the total price of your home, the less time it will take you to pay off and the less your mortgage payments will be every month. Also, depending on the loan program, please keep in mind that a smaller down payment upfront can increase monthly expenses due to a larger loan amount and potentially paying private mortgage insurance.
During this period of purchasing your home, you are going to need an escrow or settlement company, typically a title company chosen by the seller's attorney, to act as an independent third party so that you know when and who to give your money to get the deed to your new home. The title company will coordinate much of the activity that goes on during the escrow period. For earnest money deposits, this is typically deposited at the seller agent's brokerage or buyer agent's brokerage but may also be held by an attorney depending on the terms of the agreement. You'll want to make sure that you have funds ready when you are beginning your search so you are ready to go when the time comes.
The earnest money deposit check will be cashed. Assuming the sale goes through, this money will be applied to the purchase price of the home. If for any reason the sale is not consummated, you may be entitled to receive all of your deposit back, less standard cancellation fees. In certain instances, the seller may be able to retain this money as liquidated damages. For any specific questions regarding purchase agreements or real estate law it would be wise to speak with your real estate legal counsel.
The period that you are "in escrow" or "under contract" is often 30-45 days, but may be longer or shorter. During this time, each item specified in the contract must be completed satisfactorily. Once your offer is accepted, you have already come to an agreement with the seller on the closing date and the contingencies. Each contract is different, but most include the following:
1. Inspection contingency and attorney review: An inspection should be completed as soon as possible after the contract is signed as unsatisfactory results of the inspection may mean that you will want to negotiate credits or repairs from the sellers. You may also want to cancel the contract at this point, depending on negative inspection results and major repair items. Attorney review also happens simultaneously during the inspection time period and is usually resolved within 5 - 10 business days after contract acceptance but can be extended by the attorneys up until your close date depending on the legal negotiations.
2. Financing contingency (if financing): Once the contract is signed, you have a period of time to secure funding. If, for any reason, you are unable to secure funding during the period of time granted to you by the contract (and the seller will not provide a written extension of time), you must decide whether you want to remove the contingency and take your chances on getting a loan. You may choose to cancel the purchase contract. Your lender and real estate attoney will guide you through this process from the beginning.
3. A requirement that the seller must provide marketable title. With an attorney or title officer, review the title report. The title must be "clear" to ensure that you do not have legal issues regarding your ownership. Check into local and state ordinances regarding property transfer and make sure that you and/or the seller have complied with them. Your real estate attorney will help with this.
4. Secure homeowner's insurance. This will probably be required before you can close the sale. Due to such requirements as special flood insurance, obtaining this insurance may require a lengthy period of time. It would be in your best interest to apply for insurance as soon as possible after the contract is signed. Also, an experienced insurance agent will see past claims made by the current homeowners which you can then discuss with your real estate attorney in attorney review, along with any inspection items found during the home inspection.
5. Contact local utility companies to schedule to have service turned on when you close escrow. Some North Shore municipalities require a final meter read to be performed within two weeks of close date. This is typically taken care of by the seller.
6. Schedule the final walk-through inspection. At this time, you should make sure that the property is exactly as the contract says it should be. What you thought to be a "permanently attached" chandelier that would come with the property might have been removed by the seller and replaced with a different fixture entirely.
You've made it! Once the sale has closed, you're the proud owner of a new home. Congratulations!