Escrow: Now What?
Congratulations, you are on your way to owning your very own home! Follow these suggestions (and your Realtors's advice) so that escrow and settlement with go as smooth as possible.
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 - check with your lender), 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.
During this period of purchasing your home, you are going to need an escrow or settlement company 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 escrow or settlement company will hold your good faith deposit and coordinate much of the activity that goes on during the escrow period. This deposit check may also be held by an attorney or in the broker's trust account. Make sure that there are sufficient funds in your account to cover this check.
The good faith deposit check will be cashed after the contract has been accepted (signed by both seller and buyer). 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 possible cancellation fees. In certain instances, the seller may be able to retain this money as liquidated damages. Prior to executing a purchase contract, talk with your Realtor about the good faith deposit and how it's handled.
The period that you are "in escrow" is often 30-40 days, but may be longer or shorter. If the sale is a cash transaction, escrow can be as short as 10-14 days. Transactions that require financing are what generally take 30-40 days. During this time, each item specified in the contract must be completed satisfactorily. By the time you have opened escrow, you have come to an agreement with the seller on the closing date and the contingencies. Each contract is different, but most include the following contingencies (this does not represent all available contingencies):
1. Home Inspection contingency. This should be completed as soon as possible after the contract to purchase is signed. Unsatisfactory results of the home inspection may result in starting negotiations for repairs, possibly negotiating a credit for the repairs or in some rare cases, canceling the contract if an acceptable resolution for the repairs can not be negotiated. Depending on the property, other inspection contingencies can include, but not limited to: lead based paint inspection (for properties built prior to 1978), mold inspection, radon inspection, chimney inspection and well & septic inspections.
2. Financing contingency. Once the contract is signed by all sellers and buyers, you have a specified period of time to make a written application for the mortgage (can be done electronically depending on the lender) and there will be a defined time in which you must have the mortgage approval. If, for any reason, you are unable to secure financing during the time allocated in the contract (and the seller is not willing to provide a written extension to obtain the financing), you may need to cancel the contract.
3. Condo or HOA resale documents contingency (if applicable). Depending on the state, a buyer may be required to receive these documents once under contract. Maryland & Delaware both have laws pertaning to HOA and Condo resale documents. Once the buyer receives, the buyer generally has a defined period of time to review and may be able to rescind the contract if they do not like what they are seeing in the HOA or condo documents.
4. A requirement that the seller must provide marketable title. The title must be "clear" to ensure that you do not have legal issues regarding your ownership. Your settlement attorney or title officer will handle reviewing the title information and will notify all parties if their is a title issue.
Here are some other items to consider:
5. Secure homeowner's insurance. If purchasing a condo, typically the condo fee covers that master hazard and flood insurance for the building, so an owner would need insurance to cover the inside of the condo, called a H0-6 policy. A lender will generally require insurance be in place before you can close the sale. It would be in your best interest to apply for insurance as soon as possible after the contract is signed. Depending on the location of a single-family home, flood insurance may be required.
6. Contact Utility companies. Service should be transferred into buyers name and service should start on the day of settlement. It's best to call utility companies at least 1 week prior to settlement.
7. Schedule the final walk-through inspection. We generally recommend that a buyer do a final walk-through just before settlement to make sure nothing has changed with the property since it was originally seen. Also, buyers can check the applainces to ensure they are still in working order.
8. Settlement. This is the final step in the home buying process. The settlement attorney or title officer will explain the various closing doduments and show the all parties where to sign, initial and date. If the settlement is a cash transaction, settlement can be as quick as 15 minutes. If financing is invloved, then settlememt generally takes 45-60 minutes.
Once settlement is over, you will be given copies of the closing documents and handed the keys to your beach home. Congratualtions!