Escrow & Closing Costs
- What is Escrow in Real Estate? Escrow is a neutral third-party account where funds are held until the completion of a real estate transaction. It ensures that both the buyer and seller meet their obligations before the funds are released.
- Purpose of Escrow: The primary purpose of escrow is to protect all parties involved. It ensures that the seller doesn’t receive the funds until all conditions of the sale are met, and the buyer doesn’t hand over money without assurance that they will receive the property title
- Closing Costs Explained: Closing costs are the fees and expenses that buyers and sellers incur to complete a real estate transaction. These can include loan origination fees, title searches, title insurance, taxes, and more.
- Who Pays What? Typically, both buyers and sellers have their own set of closing costs. While buyers often cover costs related to their mortgage, sellers usually handle the commission for real estate agents.
- Estimating Closing Costs: It’s crucial for buyers to get an estimate of closing costs early in the buying process. This helps in budgeting and ensures there are no surprises at the end.
- Negotiating Closing Costs: Sometimes, buyers can negotiate with the seller to cover some of their closing costs. This can be especially true in a buyer’s market.
- Importance of Review: Before closing, buyers receive a Closing Disclosure that outlines the final costs. It’s essential to review this document carefully and compare it to the initial Loan Estimate.
- Escrow Refunds: If there’s money left in escrow after all costs are paid, the excess funds are returned to the buyer.
- Closing Day: On the closing day, all parties meet to finalize the transaction. Once all documents are signed and funds are distributed, the property officially changes hands.
Understanding escrow and closing costs is crucial for a smooth real estate transaction. Both buyers and sellers should be well-informed to ensure a fair and transparent process.
