Buying a home is one of the most significant purchases you’ll ever make, and it should be no surprise therefore that some administrative elements of your real estate deal are quite technical.
These processes have been put in place to protect buyers and their money.
Buyers probably ask me more questions about having to establish an escrow account than any other detail of the purchase.
This is not surprising, considering that there are very few activities in life that require an escrow account.
The process really starts when you make an offer on a property and it’s accepted. That’s when you need to open an escrow account into which your down payment on the property will be deposited.
So, why is this a good thing?
First of all, you’re not giving your money to the seller who, theoretically, could refuse to return it even if there was an issue with the property.
In fact your money is sitting in neutral territory. It’s managed by an independent third party who specializes in the administration of escrow accounts. They will only release your funds once both parties are satisfied the deal has been satisfactorily completed, or return that money to you (with interest) if the sales falls through.
I’ve made a list of activities that have to occur while your money is in an escrow account. It covers the key steps between your offer on a property to the agent pasting a “Sold” sticker on the signboard.
I hope it will guide you on some of the more technical and administrative elements of buying a home. Your agent, lender and lawyer will help you navigate this process and should always keep you fully informed of progress.
Lender’s Appraisal
Once you have made an offer on a home (and I’m assuming you have finance organized already) then your lender is going to want to appraise the property for themselves. They’re going to make sure you’re not paying too much with their money. They’ll only issue a loan if satisfied the property value is at least equal to the amount of the loan.
Seller disclosure
The seller must provide a list of any known issues with the home. None of these should surprise you, as you should have been made aware of any problems before making your offer. Nevertheless, this is a vital part of the process as it ensures there’s no misunderstanding or claim of misrepresentation. You must approve the seller’s disclosures in good faith on the basis they are accurate.
Inspection time
You should order a home inspection by a qualified builder and a pest inspector. Sometimes, a buyer will seek a report from a roofing specialist, and an engineer if they’re worried about flooding. You should make sure the contract of sale states that the deal is contingent on the property passing these inspections. If it fails, you can pull out or renegotiate for a lower price so you have funds to fix the problems.
Title report
Your legal team will be instructed to check the property is actually owned by the seller, and there are no loans held against the property that you might inherit as the owner.
Insurances
You will need to purchase insurance for the moment you take possession of the home, and that needs to be done in advance. Your lender, lawyer or agent will guide on the right types of insurance that should be purchased for your situation.
Final walk-through
You should conduct one last inspection of the property before the deal closes. It gives you a chance to make sure there has been no damage or fixtures taken from the home that should have stayed. At this stage, you still have the option to back-out, but it’s rare for that to happen without good reason.
Form-filling
Close to settlement, you’ll be given an HUD-1 form that outlines the terms of your loan and the closing costs. This will be the official summary of your expenses and should be similar, if not precisely the same, to the outline you’ll have accepted when you applied for the loan. That said, check for additional fees.
Done deal
The escrow account will close once all the papers have been signed and the outstanding sum for the purchase of your new home has been placed into the escrow account by your lender. The escrow officer will dispense the funds as required and then close the account.