Escrow starts when your offer for a house is accepted and ends when the transaction is finalized and you receive the keys. During escrow a buyer is expected to provide many documents and fill out countless documents. Except for Contract fee and Inspection fee, most fees will be included as part of closing cost. Sometimes thin-margin operating loan officers will ask to pay for extra costs (such as cost for obtaining HOA documents). You can (and should) negotiate these extra costs if they occur. Work closely with your real estate agent and loan officer during Escrow.
This is one final step before receiving the key to your new property. Here is what to expect:
- Contract fee – Pay 1% (usually) of the offer price at the beginning of escrow which will apply towards down payment.
- Contingency period – In California, if contingency period is not specifically written in an offer, you can walk out of an escrow with any reason in first 17 days of escrow. Contract fee will be lost if an escrow is cancelled after 17 days.
- Appraisal – Appraisal of the house is half-objective and half-subjective evaluation of a property’s worth. In current appraisal process, cosmetic updates such as interior features have lesser impact and objective features such as neighborhood and house size have a bigger impact. Up to 80% of the appraisal value of a house can be applied for mortgage loan in most cases and therefore appraisal has to be equal or above a selling price if buyer is considering 20% down payment. Appraisal should be conducted within the contingency period.
- Inspection –Buyer will be responsible for Inspection fee outside of escrow. Best inspectors will find more faults (including critical faults and cosmetic faults) with a house and finding can be used to demand fixtures on findings and money for fixtures, for much more than what you paid for your inspector. Inspection result should be obtained within Contingency period so that you could walk out of escrow if something major (such as water damage) is found.
- Full loan process – It will consist of documents and signatures going back and forth between you and your loan officer. If your deposit money hasn’t shown in last 2 bank statements, your loan officer will be forced to trace every single penny that hasn’t shown. Deposit money that was added in last 2 bank statement can have the following sources:
- Work wage
- Gift money – A notary statement will be required that states the money was given free and was not borrowed, even if the gift money comes from outside of United States.
- Money from easy liquidation assets such as stocks.
- Sign, sign, and sign documents – Expect to read and sign hundreds of documents both online and in person.
At the end of the escrow, the full deposit money will be given to lender/seller and the buyer will receive the key to the house. After all that work, you can now sit and relax. Good work!