If you are buying or selling a home, there are some terms you need to be familiar with. One of them is ‘escrow.’ You may know that your money will be put in an escrow account, but what does it do and why do you need it?
Escrow is a third-party service that holds funds, documents, and property-related items until all terms of a real estate transaction are met. It acts as a safeguard for the buyer and seller during the sale of a home. Escrow ensures both parties meet their obligations before the property and money officially change hands. Escrow is also beneficial when you have mortgage payments, as it allows for monthly payments toward insurance and taxes rather than a large lump sum once a year.
People often use escrow twice when buying a home. It happens first when putting down a good faith deposit, also known as earnest money. They may also do it again at the closing. Homebuyers are often required by the lender to set up an escrow account to pay property taxes and homeowners insurance.
Here’s a look at how escrow is used in the timeline of buying a home.
Opening Escrow
After the seller accepts the buyer’s offer, both parties select an escrow company (often chosen by the seller). The buyer deposits earnest money into the escrow account, showing their commitment.
Review and Verification
The escrow agent gathers key documents, such as the purchase agreement, title report, and disclosures. As a neutral party, the agent ensures that all terms in the purchase agreement are followed.
Contingency Period
During this time, the buyer works through contingencies like:
- Home inspection. The buyer ensures the property is in acceptable condition.
- Appraisal. The lender confirms the home’s value supports the loan amount.
- Financing. The buyer secures final loan approval.
If all contingencies are satisfied, the sale moves forward. If issues arise, escrow can hold or return funds.
Title Search and Insurance
The escrow company coordinates a title search to confirm that there are no liens or ownership issues. The buyer often purchases title insurance, which escrow helps facilitate.
Final Approval and Document Signing
Once contingencies clear and the lender approves the loan, escrow prepares closing documents. Both parties sign the final paperwork, which includes the deed, loan documents, and settlement statement.
Funding and Transfer
The buyer’s lender wires funds into escrow. The escrow agent confirms that all payments, such as the down payment, loan funds, and seller proceeds, are correct. Then, escrow releases the funds to the seller and records the deed transfer with the county.
Closing and Keys Delivered
Once everything is recorded, escrow closes, and the buyer officially owns the home. The buyer gets keys and possession per the contract.
Contact Our South Carolina Real Estate Attorneys Today
Escrow can be confusing. It may be used multiple times during the closing of a home, so it’s important to understand the process. In South Carolina, the closing attorney can also act as the escrow agent, but the lender will handle the escrowing of the taxes and insurance.
The South Carolina real estate attorneys from Blackacre Law, LLC can answer your questions about escrow and help make the process as smooth as possible. Call (864) 775-5400 or fill out the online form to schedule a consultation.