Understanding the Escrow Process and Requirements in 2022

Dec 11, 2023 By Susan Kelly

Escrow is a means to hold money or a deed until specific criteria are satisfied. It's common for escrow agents or firms to handle real estate transactions. When a transaction is finalized, a loan servicing company could establish an escrow account in the borrower's best interest as a precautionary measure. They reduce the monthly payment for insurance as well as property taxes for the borrower. This guide will help you understand the escrow process and requirements.

What Are the Steps of The Escrow Process?

The escrow procedure begins as soon as you've secured a mortgage and made a deal on your dream house.

Open An Account

After settling on a price and finalizing a purchase agreement, the first move you need to make is to set up an escrow account. Earnest money will be collected by your real estate agent and deposited into a trust account. Until specific requirements are satisfied, it is managed by a third party on behalf of two parties who have agreed to it. As part of the closing process, an escrow corporation receives money and papers from the buyer and seller. The earnest money, loan papers, and the signed deed are included here.

Wait For the Bank

In most cases, you, the buyer, are required to foot the bill for the bank's property assessment. This is a measure used by the lender to safeguard its financial gains. Loans are denied if the appraisal is lower than the agreed-upon purchase price. Additional information about why you feel the house should be valued at a higher sum may be enough to influence the appraiser's view. You may also want to acquire a second opinion on the matter. You have the right to terminate the purchase agreement if you cannot arrange to finance.

Secure Financing

Once you provide your lender with the property's location, they may produce a reasonable faith estimate for you if you are already pre-approved for a mortgage. The reasonable faith estimate contains your loan amount, interest rate, closing charges, and other home-buying expenditures. Before you sign anything, you have the opportunity to haggle over the price.

Approve Seller Disclosures

You should be informed in writing of any issues with the property at this stage of the escrow procedure. According to the listing, many of these issues have already been addressed.

Get A House Inspection Done

Although not necessary, you should have a house inspection. Any potentially hazardous or expensive features of your new house will be discovered during an examination by a qualified specialist. As a buyer, you want to be aware of these issues so that you may negotiate a lower selling price or have the seller address them. Keep in mind that if the contract states that the acquisition is "as is," you are out of luck when negotiating seller concessions.

Pest Inspection

Pest inspections aren't usually needed by lenders, like house inspections. The bottom line is that getting one is in your best interests. Termites, carpenter ants, and other pests may cause stress. These pests aren't usually around when you visit the property during the day. If you want to acquire the property, you must first deal with any concerns that may have arisen in the past.

Environmental Inspection

For example, mold and asbestos might be found during environmental assessments. These issues may have severe consequences for one's health, and fixing them might be prohibitively costly.

Other Inspections

Inspections should be considered if you reside in a region susceptible to earthquakes or floods. Homeowner's insurance is unavailable if the property is at risk of flooding, implying you cannot secure a mortgage.

Buy Hazard Insurance

Flood insurance is an example of hazard insurance, which covers a person's property in the event of a flood. As long as your mortgage is outstanding, you'll be required to have homeowner's insurance. Having hazard insurance is essential since it will cover your losses in the case of a natural catastrophe.

Title Report and Insurance

Regardless of whether or not your lender requires them, you would still want them if they weren't. Using a title report, you may verify that the property's title is clear and unencumbered by any liens. You and your lender are protected by title insurance in the event of a future lawsuit. Before the transaction can go through, the seller must take care of any difficulties with the title. The escrow firm and the title company may be the same in certain areas.

Final Walk-Through

They are having the last walk-through before closing is a good idea. This ensures the home is undamaged, and the seller left all agreed-upon appliances as well as fixtures. In most cases, you can't back out of a sale until it's been severely damaged.

Review The HUD-1

Loan conditions and closing expenses are summarized in the HUD-1 form. Compare the figures to the reasonable faith estimate provided at the start of the house purchasing process. They should resemble one another greatly—Double-check for omissions and unauthorized charges.


Don't worry if you don't grasp every aspect of the escrow procedure since your real estate agent would be in charge of it all. A basic understanding of how the transaction works is essential to avoid being taken advantage of or losing your house by an evil party, especially when a large sum of money is on the line.

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