Buying your first home is an exciting adventure, but it also comes with a lot of new terms and concepts you may not be familiar with, such as an escrow account. Escrow is a vital part of any real estate transaction and protects the financial interests of both buyers and sellers. If you’re purchasing a home, understanding the importance of escrow will help you navigate the process and reduce the risk of common mistakes. Below is an overview of how escrow works in a real estate transaction to help you understand how and when it's necessary.
What Is Escrow?
During real estate transactions, most states require funds to be held by a neutral third party until the sale is complete. Earnest Money can be held by the real estate broker firm, title company or anyone that the buyer and seller agree to.
After signing the sales agreement, buyers will transfer their earnest money into escrow. Any additional money that will change hands at closing, like the down payment and/or closing , will also be held in escrow until the transaction is finalized.
The escrow holder will then only release the funds when certain conditions have been satisfied. For instance, if the buyers back out of the sale, the money will be released to the buyer or seller depending on what the signed release of earnest money form states . Typically, all of the money held in escrow will go to their intended recipients when the sale is finalized.
Why Is Escrow So Important?
Escrow provides both buyers and sellers with confidence that the other party is acting in good faith. Sellers know that the buyers’ earnest money funds will be held until the transaction is closed, and lenders can act with confidence knowing that they’ll receive the insurance costs, mortgage payments, and other fees right away.
Because the funds aren’t released until the title is transferred, however, buyers can also feel more reassured that they aren’t being scammed. If the title company discovers that the seller doesn’t have the right to sell the property, buyers will easily be able to get their money back with a release of earnest money form signed by all parties.
If you’re buying a home anywhere in Ohio or northern Kentucky, All Points Title & Closing will guide you through the closing process with ease. In addition to thorough title inspections and closings, they’re also the escrow service of choice for brokers and lenders throughout the region. Visit their website or call (513) 863-7600 to schedule a consultation to discuss your sale.