Escrow: Now What?
Congratulations, you are on your way to owning your very own home! Follow these suggestions (and your Realtors' advice) so that escrow and settlement go as smoothly 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), 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 will need an escrow or settlement company to act as an independent third party so that you know when and to who to give your money to get the deed to your new home. The escrow or settlement company will hold your deposit and coordinate much of the activity during the escrow period. This deposit check may also be held by an attorney or in the broker's trust account. Ensure sufficient funds are in your account to cover this check.
Assuming the sale goes through, this money will go toward the home's purchase price. If the deal does not go through, you may be entitled to receive all of your deposit back, less standard cancellation fees. In certain instances, the seller may be able to retain this money as liquidated damages. Before executing a purchase contract, it would be wise to speak with your counsel regarding whether or not it is in your best interest to have a liquidated damages clause as part of the contract.
1. The period that you are "in escrow" is often 30 days, but it may be longer or shorter. Every item specified in the contract must be completed during this time. By the time you have opened escrow, you have agreed with the seller on the closing date and the contingencies. Each contract is different, but most include the following:
Inspection contingency: this should be completed as soon as possible after the contract to purchase is signed, as unsatisfactory inspection results may mean you want to cancel the contract.
2. Financing contingency: Once the contract is signed, you have a period to secure funding. If, for any reason, you cannot secure funding during the period of time granted to you by the contract (and the seller will not provide a written extension of time, you must decide whether you want to remove the contingency and take your chances on getting a loan. You may choose to cancel the purchase contract.
3. A requirement that the seller must provide a marketable title. With an attorney or title officer, review the title report. The title must be "clear" to ensure that you do not have legal issues regarding your ownership. Check into local and state ordinances regarding property transfer and ensure that you and/or the seller have complied with them.
4. Secure homeowner's insurance. Insurance will probably be required before you can close the sale. Due to such requirements as special fire and earthquake insurance, obtaining this may require a lengthy time. It would be in your best interest to apply for insurance immediately after the contract is signed.
5. Contact local utility companies to schedule to have service turned on when you close escrow.
6. Schedule the final walk-through inspection. At this time, you should ensure that the property is exactly as the contract says it should be. What you thought to be a "permanently attached" chandelier that would come with the property might have been removed by the seller and replaced with a different fixture entirely.