The last step of a mortgage is just as important as the first
Mortgage brokers understand that every mortgage – and borrower – is totally unique, but the general process of funding a mortgage is the same every time. There is a defined series of stages: application, processing, and closing, and each one of them is equally important to the process, but we want to focus on what might be the most important: closing. The closing of a mortgage is when the property sale – if for a purchase – will complete, funds will be disbursed by the lender, and all of this is managed through what’s called an escrow company.
So what is escrow?
As we outlined above, escrow is the process that formally transfers the deed of a home to the buyer, mortgage funds to the borrower, and proceeds from the sale to the seller. There are different types of escrow, such as for commercial real estate, but we’ll be focusing on the most common: residential escrow for home purchases.
Escrow services help all parties involved in the sale of a home supply the correct documentation to ensure that every party has met the requirements of the sale. Different levels of government, including local, state, and federal, can be involved in the transfer of property, and will have different documentation and taxation requirements. As it’s clearly in all parties’ best interest to be compliant with government regulations, escrow companies provide a very necessary service to finish the sale of a home.
What specifically do escrow companies do?
Following the borrower’s mortgage approval, the escrow company will hold the buyer’s down payment and the funds provided by the lender until they have confirmed that all parties in the transaction – buyer, seller, mortgage broker, and lender – have met their requirements as outlined in the purchase agreement. Once the escrow company has confirmed that all requirements have been satisfied by all parties, the escrow company will use all the funds they have held to pay off the seller’s existing mortgage, vendor bills approved by the parties involved, and other any liens or debts against the property. Then, they will calculate the remaining funds from the transaction and release them to the seller along with a final accounting of the transaction for tax purposes.
Another responsibility of escrow companies is to ensure that no fraud takes place during the transaction. They will confirm the identities of both the buyer and seller, and check the title of the subject property for any additional liens or debts held against the property. This is critically important, as no homebuyer wants to be held liable for another person’s debt!
Escrow is an absolutely critical part of any mortgage transaction, and that’s why we always recommend working with a broker. We’ll guide you through the process of applying, getting approved, and finally closing the purchase of your home. If you are ready to take the first step to becoming a homeowner or refinancing your home, get in touch with us here!