Now that your offer has been accepted, an escrow can be opened.
Escrow is a legal arrangement in which an asset (in this case real property) is deposited into safekeeping under the trust of a neutral third party (an escrow agent) pending satisfaction of contractual agreement. Once the agreement has been met, the escrow agent will deliver the asset to the party prescribed by the contract. Basically, escrow is a third party that collects all the funds and paperwork and handles the recording of the transaction. They usually last between 30 and 60 days.
Once you have opened escrow, we mentioned in the last step, your deposit check will be cashed into an escrow account. This deposit (usually 3% of purchase price) will also supplement your down payment that you arranged with your lender. For instance, if you arranged to get an 80% loan, your down payment will be the remaining 20%. Since you have given a 3% deposit, you will only need to supply the remaining 17% for your down payment.
The escrow period also allows time for you to complete your contractual obligations and do your due diligence. According to a normal purchase agreement, you have 7 days to send your loan application to the lender and provide proof of funds. If you followed our steps correctly, this is already done! The purchase agreement also states that you have 17 days to complete all your inspections and release your contingencies.
What’s a contingency? When you write an offer, you are making an agreement with that seller that you will buy the house contingent upon the fact that certain aspects fall into place. For instance their is a loan contingency that says you are making this offer based on the fact that your lender can get the loan that you applied for. If you can’t get the loan, you most likely would need to cancel out of the agreement. If you can get the loan, you will need to remove that contingency with 17 days. When you remove a contingency, the offer is no longer contingent on that factor. There are also many other contingencies like inspections, termite repair, etc. Make sure that you are absolutely certain you want to remove all your contingencies. Once you do, you are locked into your purchase agreement and if you decide to cancel later, your initial 3% deposit could be at risk.
Your inspections are also done during escrow. It is your choice to have as many inspections as you want (on your dime). Usually your agent will have inspectors to refer to you to get your basic home inspection complete. Your home inspector is not a specialist in a given area of your home. All he/she may do is point out code violations, problem areas and may refer you to a specialist designed to handle problem areas such as mold issues, roof issues, land issues, etc. It is your choice to decide if these issues need to be inspected further with a specialist (again, your dime). It is also your choice to request any repairs from the seller that the inspector has found. This is also a place where your agent (hopefully us) will have the expertise in negotiating repairs. Again, inspections are also a contingency and if something is not to your liking, you have the option of backing out. If you remove this contingency, the sale of the home is no longer contingent on this factor. Again, make sure you are absolutely certain you want to remove this contingency.
Wait there’s more… The escrow company will be contacting you many times requesting signed documents, setting up dates for signatures and sending you an assortment of disclosures and reports. Be prepared to read all the disclosures and reports so that you fully understand everything about the property. Disclosures are also a big contingency. Make sure to keep this collection of documents somewhere safe and readily available.
Once you have completed your contractual obligations, your due diligence, your inspections, your request for repairs, your contingency removals, received your assortment of disclosures, documents and reports, signed the escrow documents, your lender will fund the loan, escrow can close and record a shiny new property in your name.
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