Let's talk about "escrow". When you're closing on your new property, a neutral, third party (known as the escrow holder or the escrow agent) is used to make certain the transaction will close without problems 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 holds the buyer's cash, and then disburses the funds to the seller.
The escrow company insures that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being finalized. This includes getting payments and documents, finishing required forms, and obtaining the release documents for any loans or liens that are to be cleared with the transaction, assuring you have a clean title to your house before the purchase price is fully paid.
These are the legal forms that escrow companies usually compile:
- 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
- Tax statements
- Fire and other insurance policies
Closing on the property takes place when the steps of the escrow are complete. All outstanding payments and fees are collected and paid off at this time (covering expenses such as title insurance, inspections, real estate commissions). You'll then secure the title to the home and the title insurance gets dispersed as agreed upon in the escrow instructions.
When closing is done, you'll make a payment to the escrow agent. You'll know when it's time to submit the form of payment.