What Does it Mean to be in Escrow?

When you are in escrow, it means that you have placed your funds with a third party in order to ensure that they are delivered to the other party in the transaction. This is often done in real estate transactions as a way to protect both the buyer and the seller. The third party, known as the escrow agent, will hold onto the money until both parties have fulfilled their obligations in the deal.

For example, if you are buying a house, you may put down 10% of the purchase price as a way to show that you are serious about the deal. The remaining 90% would be held in escrow until the sale is final. This protects you as the buyer in case the seller backs out of the deal or fails to meet their end of the bargain.

The Escrow Process, Explained

Once the buyer and seller agree on a price and sign a purchase agreement, your real estate agent will take your earnest money and deposit it into an escrow account. An escrow company serves as a third party that holds all funds and documents related to the home sale until the home-buying process is completed. Once the funds are in escrow, lenders will typically do their own appraisal of the property to protect their financial interests. 

After the appraisal portion of the escrow process is completed, it’s time to secure financing. While you were likely pre-approved for a home loan at the purchase agreement stage, it’s time to sign the final loan paperwork and secure financing. The next step is to approve any seller disclosures about the property, and request repairs or changes be made if necessary. You’ll also want to obtain a home inspection, although this is not required. Home inspections can help buyers to know if there are any issues with the property or if any repairs need to be made. 

Once financing is secured, the home is inspected and any potential problems are addressed, buyers will be able to do a final walk-through (if desired) and close escrow. The closing process varies from state to state, but will typically involve a lot of paperwork and submitting the down payment. Then, the buyer will finally be able to take possession of the home. 

Reasons Why a Property is Held In Escrow 

When a property is being held in escrow, it usually means there are a set of conditions that need to be met before the buyers and sellers can continue the home buying/selling process and before the buyers can take possession of the property. There are a few common conditions that need to be met when a property is held in escrow, including appraisal, home inspection, financing and insurance paperwork, zoning, and repairs.

Any of these reasons or conditions may be used to hold the property or the funds for buying the property “in escrow” until they are completed. For example, if a purchase included guarantees that the seller would address repairs to a property before the buyers took over possession, and the sellers fail to make those repairs while in escrow, the sale could fall through.  

Is Being In Escrow a Good Thing?

There is no one-size-fits-all answer to this question, as the benefits of being in escrow will vary depending on the specific situation. However, in general, being in escrow can be a good thing because it provides a measure of protection for both parties involved in the transaction.

In some cases, being in escrow can also speed up the transaction process. Since both parties know that their funds are safe and secure, they may be more likely to complete the sale quickly and without any drama.

Home Loans from Six Pillar Lending 

Have more questions about the home buying process or being in escrow? Six Pillar Lending is here to help. Our mortgage-savvy team of experts can help you get your dream home with the best financing possible. Get in touch with us today to get started.