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Escrow 101: Defining Escrow & What You Should Expect

Buying a home can be a long and complicated process which can be especially confusing for first-time homebuyers. When you decide to purchase a home, you'll need to go through escrow before you can pay the seller for the home and become the official owner. Here is a basic overview of what escrow is so homebuyers know what to expect.

The most basic definition of escrow is the process whereby the giving of funds by one party (the homebuyer) to the other party (former homeowner) upon the completion of all the terms of the agreement (transfer of home ownership) are met. In essence, escrow is an agreement between the homebuyer, seller, home loan lender and the bank (the loan borrower). Escrow ensures that no money or final deal is made on the transaction of the home before all required paperwork, fees and procedures are completed. The homebuyer can make a down payment for the home and assume legal ownership of the house after escrow is closed, or when all requirements are met.

Now that you're aware of what escrow is and its purpose, here is how it can be calculated. The most straightforward way to get an estimate of how much escrow is due is to add together the principal of the mortgage, the interest of the mortgage principal, the property taxes of the house and the home insurance premiums. Most often, an account specifically for the escrow will be created and will be separate from a mortgage account. The amount of escrow a homebuyer pays out of pocket depends on their mortgage company and their loan lender. Some loans may require that a lender maintains and monitors the escrow account on behalf of the new homeowner. By law, escrow must be recalculated once every 12 months to compensate for the changes in monthly mortgage payments that may occur during the course of the year.

To speed up the homebuying process, buyers should know the requirements and process of the terms of their escrow agreement and make sure that all deadlines are met. The escrow process is different for each property and type of homebuying transaction. For more information or to get help processing your escrow, contact a professional real estate agent in La Jolla, CA today.


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