What is the difference between escrow and closing?

Buying a home can be a complex process with many steps involved, including escrow and closing. While these terms are often used interchangeably, they actually refer to two distinct parts of the home buying process. To help clarify the distinction between these two terms, let’s explore what each one entails.

What is Escrow?

Escrow is a process in which a neutral third party holds funds and important documents during a real estate transaction. This third party, known as an escrow agent or escrow officer, ensures that all conditions of the sale are met before releasing the funds and transferring the property’s title. Escrow helps protect both parties by ensuring that the terms of the sale are met before the transaction is completed.

What is Closing?

Closing, on the other hand, is the final step in the home buying process where ownership of the property is officially transferred from the seller to the buyer. During the closing, all necessary paperwork is signed, and any remaining funds are transferred to complete the sale. Once the closing is complete, the buyer officially becomes the new owner of the property.

Related FAQs:

1. What is the role of the escrow officer?

The escrow officer acts as a neutral third party responsible for ensuring that all conditions of the sale are met before releasing funds and transferring the property’s title.

2. How long does the escrow process typically last?

The length of the escrow process can vary but typically lasts between 30 to 45 days.

3. What documents are typically held in escrow?

Documents such as the purchase agreement, title documents, and any required disclosures are typically held in escrow.

4. Who chooses the escrow company?

In most cases, the buyer or seller can choose the escrow company, but this may vary depending on local customs and regulations.

5. What happens if the conditions of the sale are not met during escrow?

If the conditions of the sale are not met during escrow, the escrow officer may delay the release of funds until the issues are resolved.

6. How are closing costs calculated?

Closing costs are calculated based on a variety of factors, including the purchase price of the property, loan fees, and title insurance costs.

7. Who attends the closing?

Both the buyer and the seller, along with their agents and the escrow officer, typically attend the closing.

8. Is a down payment required at closing?

Yes, the buyer is typically required to provide a down payment at closing, which is a percentage of the purchase price of the property.

9. What happens to the earnest money deposit at closing?

The earnest money deposit is typically applied towards the buyer’s down payment or closing costs at closing.

10. Can closing be done remotely or virtually?

In some cases, closing can be done remotely or virtually, especially in situations where all parties are unable to attend in person.

11. Are there any taxes due at closing?

Taxes such as property taxes and transfer taxes may be due at closing, depending on the terms of the sale and local regulations.

12. What should buyers bring to the closing?

Buyers should bring a government-issued ID, proof of homeowners insurance, and any required funds for closing costs or down payment.

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