Home SelliHow Does the Escrow Process Work in California?ng Disclosures
Are you up to buying a new property or at least planning to do so in the near future? Do you want to get familiar with every process required with making such a big purchase? Then “the escrow process” is probably an unfamiliar term for you and that’s why you’re here. With that being said, let me point out what you need to know about the escrow process and the importance of it.
Although the word, “Escrow” nationally and internationally may be defined as an account that you set up with a banker or lender to seize your property taxes, insurance, and mortgage-related payments, the process of Escrow in California, however, is described slightly different.
“Being in escrow” is the settlement process occurring to the time in which the seller accepts the offer and the buyer gets the property. More exactly, the process of depositing money and documents with the approval of a neutral third party that holds them until both the seller and the buyer reach a mutual agreement.
Now, some of you may wonder, why is this “seemingly complicated” process required and who’s the “third party”?
Well, that is actually a simple answer. Usually, the parties (seller and buyer) may not trust each other as they’ve never met before. How can someone know they will get everything they were promised after handing over their money without any impartial party to witness and confirm? This is where the “third party” also referred to as, escrow holder, settlement agent, or stakeholder intervenes.
The escrow holder is responsible for dealing with the common concerns that both parties usually have, from the lack of trust to the need for a formal binding contract, title insurance, government license, a clearinghouse to pay off debts and a full accounting of funds and documents.
Now that it’s been clarified what’s up with the escrow process and settlement agent, let’s walk through the most important steps a buyer should follow when, “going into escrow.”
Before jumping right into the steps, you need to get familiar with the key takeaways. First of all, the buyers should open an account in which a deposit is held, then he or she must wait for bank approval, secure financing, complete revisions and inspections, get hazard insurance and finally close the contract. However, keep in mind that if the buyer does not comply with the conditions, he or she can freely walk away from the agreement.
1) Open an Escrow account
As soon as you and the seller agree on a price and sign a purchase agreement, open an escrow account if you don’t have one already. Your real estate agent will take your money applied to your down payment and deposit it in your escrow account at the escrow company specified in the mutual purchase agreement. The escrow company will serve as the escrow holder (the neutral party) and manage your account until you close the deal.
2) Wait for the bank's appraisal
The bank providing the mortgage has its own appraisal for the property for which the buyer will usually pay.
3) Secure financing
Once you get pre-approved for a mortgage, get an estimate of your loan amount, interest rate and closing costs from your lender and decide if you agree or want to negotiate them.
4) Approve the seller disclosure
This is the step in which you will receive all kinds of issues identified by the seller regarding the real-estate property to make sure you don’t get any unexpected surprises the second you start living in your new house.
5) Get a house inspection
It is a great idea for a buyer to get a professional house inspection to make sure everything is alright with the property. A professional inspector can be hired for just a few hundred dollars and will ensure your new home is safe.
6) Title report and insurances
The title report will make sure the house is clear and title insurance will protect you from any upcoming problems. There are other insurances like hazard and homeowner insurance’s that you’ll likely have to get also. Your lender will help you with all the required insurances so don’t worry about forgetting one.
Now that you know about the escrow process and plan on getting a new house in California, don’t hesitate to contact us by phone at 949-438-4343 or email at info@jampropertiesca.com. We are a real estate solutions and investment company in Orange County, CA, willing to help you with any of your real estate needs.