Buyers purchasing a house with cash have life so much easier, but most homebuyers must research and arrange for a mortgage lender to provide the money for the purchase. Like a juggler with a number of pins, your escrow officer or attorney handling the sale must keep the escrow pins organized. Escrow collects documents from all parties in the sale and holds the cash until all people signing the sales agreement meet the contract terms.
Escrow and Closing
Lenders typically ask buyers for the most convenient date for loan payments. Most lenders offer options including the first day of the month, but other dates are an option. Some borrowers match the loan due date to payroll dates and arrange for automatic payments from a checking or savings account. A late escrow doesn't mean this date arrangement changes, but it does mean your first payment might be paid by a check from your escrow account, rather than using the automatic withdrawals. With delayed escrow closings, the mortgage due for the month is prorated. You'll pay daily interest charges for each day between the close of escrow and the next scheduled loan due date, typically 60 days from the close.
Federal and state laws require your mortgage lender to clearly outline the amount of the loan, interest rate and due dates for your loan payments. These charges are pro-rated using the mortgage payment, taxes and homeowner's insurance before your official first mortgage payment. Prior to that self-payment, your escrow account covers the mortgage loan payments. Delay in the escrow closing changes the amount of mortgage interest for the month.
A loan lock guarantees your interest rate for a set period during the escrow. When you lose your locked interest rate due to an escrow delay, your first mortgage payment might increase due to the loss of the lower interest rate. This requires your lender to create a new Good Faith Statement, a list of your charges and monthly loan payments. You'll also need to sign the new disclosure statement and a loan agreement including the higher interest rate. You may have an option to pay for a lock extension or an additional loan lock to prevent this interest rate hike when escrow fails to close on time.
The focus for buyers should be the funding time of the mortgage loan, not necessarily the closing. Funding means the lender wires the loan money to complete the transaction, and the lender begins charging you interest on the loan. Your real estate agent and escrow officer work together to avoid any premature funding errors, but you can assist both by keeping track of your loan funding date. If escrow requires extra time to close, arrange for an amendment to the sales contract to push back the funding date -- and your first mortgage payment. The date change also requires recalculation of your portion of the home's property taxes and the new homeowner insurance.
- FHA Home Loans: FHA Loan Funding Process
- KnowYourOptions.com: Glossary -- Prepaid Interest
- Consumer Financial Protection Bureau: What Is a Good Faith Estimate?
- Consumer Financial Protection Bureau: How Do I Figure Out What My Monthly Payment for a Mortgage Loan Will Be?
- Consumer Financial Protection Bureau: What Are Daily Interest Charges?
- Consumer Financial Protection Bureau: How Can I Understand How Much My Payment Could Change If I Receive a Different Interest Rate?
- Scotia Mortgage Corporation: Schedule A
- HSBC: Mortgage Payment Frequencies
- Federal Reserve Board: About Lock-Ins
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