Searching for a home can be an exhausting process. You visit home after home, hoping that one will be the perfect fit. Once you find one, you put a bid on the home, cross your fingers and hope for the best. If all goes well, the sellers accept your offer. It's a little premature to celebrate, though. You’ve just started another lengthy phase in the homebuying process: closing.
Escrow closing is part of the overall home closing process. Escrow is closed when the funds transfer from your escrow account to the seller, and you take ownership of the home. Preliminary escrow closing refers to reviewing documents before you close escrow. You should carefully review all closing documents and consult an experienced real estate professional if you have any questions about your escrow closing documents.
Preliminary escrow closing refers to reviewing documents before escrow closing, specifically your Closing Disclosure.
What Is Escrow?
Escrow is when a third party holds an item of value. When you’re buying or selling a home, an escrow account is used to hold funds until the homebuying transaction is completed. An escrow company offers escrow accounts. Your real estate agent may recommend an escrow company, but typically, you have the option to choose a different company if you and the seller agree. The escrow company is neutral and will only release funds to the seller once all the requirements for your home purchase have been met. This protects both the homebuyer and the seller. If the transaction doesn’t go through, the escrow company will return the funds to the appropriate party.
What Is Escrow Closing?
Escrow closing is the end of the escrow process. Escrow is closed once all the required documents are signed by the seller and buyer and notarized if required. Preliminary escrow closing refers to the document you receive just before escrow closing. This is called a Closing Disclosure. Sometimes referred to as a preliminary closing statement, your Closing Disclosure provides detailed information about your home purchase. The Closing Disclosure takes the place of the HUD–1 Settlement Statement, which was phased out for most mortgages in 2015.
Understanding Your Preliminary Closing Disclosure
Your preliminary Closing Disclosure is an important document you should review carefully. It spells out the final terms of your mortgage, your closing costs and how money will change hands at closing. You receive your Closing Disclosure at least three business days before your closing date. You should compare your Closing Disclosure to your Loan Estimate, which you should receive within three business days of sending in your loan application. If there are any changes from your most recent Loan Estimate, talk to your lender, your real estate agent or a real estate attorney for clarification.
There are several areas you should carefully review on your Closing Disclosure. Make sure your name is spelled correctly and that the loan information matches your most recent Loan Estimate. Confirm your loan term, your loan type and your interest rate. Check the closing cost section and confirm there haven’t been any changes to your closing costs or the cash you need to close. Make sure your seller credits match any agreements you’ve made with the seller.
Your Closing Disclosure may also discuss an escrow account. Many homeowners choose to have their property taxes and their homeowners' insurance included with their mortgage payment. To facilitate paying these costs, you may have an escrow account set up for those payments. This escrow account is used by your lender to make these payments. This is separate from the escrow arrangements you’ve made for your home purchase.
You will need to bring your Closing Disclosure to your escrow closing. You will need to sign the disclosure, but that signature only confirms you received the form. Your signature does not mean that you agree with the contents. If there are issues, though, and you’re not comfortable signing, discuss those issues with a real estate professional.
Other Escrow Closing Documents
Your Closing Disclosure is just one of many documents you’ll need to sign at escrow closing. The exact documents vary depending on where you live. There are state-specific forms and even local forms that may need to be completed. In general, you’ll need to sign home loan documents, real estate transfer documents and real estate title documents.
Your home loan documents will include your mortgage note, which describes the terms of your mortgage, your mortgage, which is your agreement that your house serves as collateral, and your loan application. This loan application has the information that you provided when you originally applied for your home loan. If your financial situation has changed, you should disclose it on the new loan application. You should also review it to make sure all the information is accurate.
Your real estate transfer documents may include transfer tax declarations, which spell out any local or state taxes that you or the seller owe from the home sale. There may also be an affidavit of title, which is a statement by the sellers confirming they own the property. If any personal property is being included in the sale, such as appliances or a security system, there may also be a bill of sale. You also need to sign the deed which officially transfers the property to you.
The title company will also have closing documents for you to sign. These documents may include a judgment affidavit, where you disclose any judgments or bankruptcies, and a disbursement agreement, which authorizes the disbursement of funds at closing.
Once all the paperwork has been signed, you will need to pay any remaining costs. Typically, you will need to pay the balance of your down payment and your closing costs. Once your funds have been received, escrow can close and you can take possession of your new home.
How Long Does Closing Take?
Closing on a home can take anywhere from a few weeks to a few months. Escrow closing is just one of many steps involved in purchasing a home. If you’ve already been preapproved for a mortgage, that can speed up the process. If you haven’t already been approved, though, mortgage approval can take a significant amount of time.
In addition to securing a home loan, you also need to get an appraisal of the home. If the appraisal is significantly different from the loan amount, you will need to work with the lender to resolve the difference, which can take more time. You will also need to get the home inspected. Although inspections typically aren’t required, they are a good idea. A home inspection can uncover serious issues that could influence your decision to buy the home. For example, if the roof is damaged, you could back out of the sale, ask the seller to repair it or offer a lower price.
You will also need to secure homeowners' insurance and title insurance. Once your funding is secure and all the inspections are completed, you should do a final walk-through before escrow closing. Confirm the home has been vacated (if applicable) and that any work you requested has been completed. If you’re happy with the final walk-through, then proceed with escrow closing.
Closing on the home does take time, but many of the steps provide reassurance that you’re making a good investment. Keep copies of all your inspections and all the documents you sign. You never know when you might need them.
- Zillow: What is Escrow and How Does it Work?
- Nolo: Home Buyers: What Documents to Expect at Your Close of Escrow
- Investopedia: Understanding the Escrow Process and Requirements
- Consumer Financial Protection Bureau: What Documents Should I Receive Before Closing on a Mortgage Loan?
- Consumer Financial Protection Bureau: Closing Disclosure Explainer