Escrow

Explaining Escrow

If you are at all familiar with the homebuying process, it is likely you have heard the term ‘escrow’ being used often. But it can be difficult to grasp this term until you go through it yourself, and even then it may be quite confusing!

Well, this article will give you an explanation of what escrow means in simple terms anyone can understand.

Escrow is the neutral third party assigned with the role of holding funds and distributing them in accordance with the contract. If there is a breach in contract, funds can be frozen in escrow until the dispute is resolved.  

Escrow Before You Buy Your Home

Once your offer is accepted, you are required to come up with earnest money. This is money that is deposited into the escrow account to show you are serious about buying. It is usually 1-5% of the home’s purchase price.

Once the deal closes, the earnest money is returned to the buyer. It is then typically applied toward the down payment.

If the deal falls through because the buyer changes their mind, the seller gets to keep the earnest money. If the deal falls through due to a seller not coming through on repairs or damage that is found during inspection, the buyer will get their money back.

Escrow After You Buy Your Home

After you buy your home and get your earnest money back, a second escrow account is opened. This will be used through the life of your loan.

The amount of money put into this account will be calculated by the lender based on the money required to maintain your mortgage. The lender will dip into this fund to pay property taxes and home insurance premiums to ensure you don’t get a lien on your home.

Despite the loan, you will still have to make some upfront payments. For instance, you may have to pay for your first year of insurance. Then your lender will take all subsequent payments from the account.

You also may have to make a few property tax payments up front. After that the escrow account will take over.

The amount you pay into your escrow account will depend on your insurance and property tax rates. For instance, if you are paying a total of $7200 a year on property tax and insurance, you will have to pay $600 a month into your account to cover these payments.

Because rates can fluctuate, your lender will do an annual escrow analysis to make sure you’re paying the right amount. In some cases, your payments may increase. In other cases, they may decrease.

If your payment amount decreases, the lender may keep an amount equal to two extra payments plus $50 in your account. The rest will be refunded to you.

This sums up escrow and will hopefully make your home buying experience go as smoothly as possible.

Finding your Dream Home

For most people buying a house requires some amount of sacrifices. When working within a budget, it can be hard to find a home that has everything you are looking for when considering space, location, amenities and more.

And while finding the perfect home may not be realistic, if you have a bit of time, you may be able to build a strategy that allows you to find a home that is pretty terrific. With that in mind, here are some ways you can get into the home you’ve always dreamed of.

Think of What You Need and What You Can Do Without

Start by making a list of what you absolutely need in your home and what you can do without. For instance, you may absolutely need a two car garage and a large yard for your pets. However, you may be able to do without that fourth bedroom you wanted to convert into a weight room and that patio in the back of your house.

Base your needs on your lifestyle for the next five years. You can always sell to upsize or downsize after that initial period of homeownership.

That way you won’t be paying for things you won’t be using. This will get you lower payments and more money to reinvest in your new home or pay for other things you enjoy doing.

Be on Top of the Market

The early bird gets the worm.

You may be relying on your agent to let you know when new properties you are interested pop up on the market. But remember, you and your agent are a team and there are many resources for you to see new homes on the market. Discussing the pros and cons of new listings with your partner and your agent allow you to hone in on 1) Value 2) What is truly important to you.

Therefore, you should make it your responsibility to keep on top of the latest listings. You can do this be setting up alerts on real estate listing sites or just keep hitting the refresh button when you’re sitting at your desk and logged in. Many sites update as often as every 15 minutes.

Present Yourself as an Attractive Buyer

You may think you have found your dream home, but guess what? It’s probably someone else’s dream home too. In order to ensure your seller picks you instead of all the other buyers making offers, it’s important to make yourself look as attractive as possible.

When you submit your offer, include a personal touch that will make you stand out from other buyers. Think of including a letter that lets the seller know that they are making a good choice by selling their home to you.

Your agent will guide you through what to include in your offer and how to best negotiate:

Should you attempt to lowball the sellers? Or make an offer that is close to the selling price? Should you add stipulations and requests to your offer. How do you keep the offer as “clean” as possible? 

Most of all, be sure to get preapproved. This lets the seller know you are a serious buyer with the funds to go through with the purchase.

A dream home can make your life complete. Hopefully these tips will help you find a home that is ideal for you and limit the chances of sellers going with different buyers. We wish you the best of luck finding a place you really love.