In this blog we will review the escrow process. Before we get into “escrow”, lets take a look at the steps leading up to it. The first step anyone should make even before looking at homes or contacting a Realtor is getting prequalified with a Loan Officer/Mortgage Broker. The reason is if you start looking for homes first, your probably looking at the wrong homes! Why this happens is one has no idea what they qualify for until they take that first step. You could spend weeks looking at homes in the wrong price range and that’s frustrating for most people.
Once you are prequalified and we find you the home of your dreams we will write up a purchase contract. Once you’ve signed it, we will submit it to the seller. Another reason to get your prequalification upfront is we need to submit it now with your offer. The seller will either execute your contract, reject it, or more than likely submit a counteroffer back to you. This can go back and fourth numerous times with counteroffers until all parties agree to all terms. At the point where everyone agrees, the contract will be executed.
The escrow process starts when you have an executed contract and the buyer deposits their earnest money with a title company. (Think of the title company as a neutral 3rd party to ensure all parties comply with the contract. Kind of like a referee.)
Once the escrow process starts the buyers go into their 10-day inspection period. This is where they can pay for a professional home inspector to go through the entire home and report the discrepancies to the buyer. The seller will disclose the seller property disclosure statement (SPDS) at this time. The SPDS will give you all known information of damages, repairs, and basic home items known to the seller.
Prior to the expiration of the inspection period the buyer’s side will submit a buyers inspection notice sellers response (BINSR) to the seller. They can reject the contract and cancel, accept the property and not request any repairs, or request the seller to make repairs. The seller will have 5 days from this point to respond.
Once all parties have agreed to move forward the next step will be an appraisal. This will be conducted if the buyer is getting any form of a loan. Even if the buyer is paying cash and wants to ratify the purchase price they can get one. The appraisal will come in with a Notice of Value (NOV). Basically if the NOV is at or above the contract price, the process will go forward. If the appraisal comes in lower then the contract price the buyer will have to pay the difference, or the seller will have to lower the purchase price.
Now we have completed the inspections and appraisal. The lender will be working your file through underwriting and remedying their conditions to get it approved. The title company will be getting the all of their necessary disclosures, reports, payoffs, and additional information to the correct parties in preparation for closing.
The title company will prepare to schedule all parties once they have the closing packages completed and the buyer’s loan documentation. Traditionally buyers and sellers will sign at different times. The buyers usually will have to sign a couple of days in advance of closing due to lending requirements. Once buyers and sellers sign their documentation, loans and payoffs are processed, and it’s the scheduled closing day, title will release the file for recordation. Once the file records, that is when ownership transfers.