Escrow: When you're closing on your new house, a neutral, third party (known as the escrow holder or the escrow agent) is used to guarantee the transaction will close correctly and in a certain amount of time. When payment is held by a third party in a transaction between a buyer and a seller, it's in escrow. For example, in an Internet purchase, PayPal is the neutral third party that obtains the buyer's funds, and then sends the funds to the seller.
Tying up any loose ends like obtaining funds, finishing forms, securing the documents for loans and liens, and making sure you get a clean title to the property in preparation of your purchase gets finalized are all part of the job of the escrow holder.
Escrow agents compile the following documents:
- Tax statements
- Fire and other insurance policies
- Title insurance policies
- Terms of sale and any seller-assisted financing
- Requests for payment for various services to be paid out of escrow funds
- Loan documents
Upon finishing of all instructions of the escrow, closing can take place. All expenses like title insurance, inspections and real estate commissions are paid. Title to the house is then transferred to you as new owner and correct title insurance is issued as outlined in the escrow policy.
When closing is done, you'll make a payment to the escrow holder. You'll know when it's time to submit the form of payment.