What is the difference between closing and escrow? Glad you asked! Understanding closing and escrow is difficult for many buyers in Denver. This comprehensive guide is designed to make the process simple for you so you can relax and enjoy the process of purchasing your new home!
The Basics of Closing and Escrow in Denver
After you have found the home you want, made the offer, and gotten the seller to accept it, you have two more hurdles left to clear before the home is yours: closing and escrow. It can be a very tense period for both buyers and sellers – but it doesn’t have to be!
One way to survive escrow and closing is to understand the process. If you are using an agent for the transaction, they will help guide you through the process. If you are doing it on your own, you have to have a clear understanding of all of your and the seller’s obligations.
Either way, it doesn’t hurt to know what to expect. Here is what you need to know in order to not only survive escrow and closing, but to close the deal smoothly.
What is the Difference Between Closing and Escrow Part One: What Does Escrow Mean?
By the time you are ready to put your earnest money deposit into escrow, you and the seller already have
an agreement in place for the purchase of the house. That agreement includes contractual obligations that must be satisfied before the deal is finalized. While those things are being done, a neutral third party will hold your down payment in escrow until all terms are satisfied.
This is the step where money starts to change hands, specifically your money. Whatever earnest money deposit you settled on will go into escrow, and the process typically takes 30 days (sometimes more, sometimes less). A title company, escrow officer, or attorney usually is used as the intermediary who holds the money in escrow.
Funds do not get deposited until after all of the terms of your agreement have been satisfied. Still you will have to keep funds available in your account so when you are ready to close, the deposit goes through. A bounced check could ruin the deal and give the seller an out if they are looking for one.
What is the Difference Between Closing and Escrow Part Two: What are Contingencies? Understanding Inspection Contingencies and Financing Contingencies.
Two of the main contingencies written into almost all home purchase agreements are financial contingencies and inspection contingencies. There may be many other requirements listed in your contract. These are the hurdles that must be cleared before your escrow check gets cashed, the deal is closed, and the home is yours.
- Inspection Contingency: The inspection contingency basically allows you to back out of the deal if after the home is inspected some major issues that were not disclosed are discovered. This clause protects the buyer.
- Financing Contingency: The financing contingency is designed to guarantee that you have the funds to purchase the home. If you are waiting on a loan approval and your loan is not approved, the deal is off. That is why it is best to get pre-approved long before you get to this step. This clause protects the seller.
What is the Difference Between Closing and Escrow Part Three: What Happens at Closing?
At the closing you meet with your agent, the seller’s agent, the seller, and all other interested parties. We call this process the settlement or the closing. This is where all contingencies are verified, all parties sign final documents, and they transfer the deed. There are fees associated with the close, which are paid at the settlement. Typically closing costs are less than 5% of the cost of the home.
It is a good idea to get a title search done – in fact, this is often a requirement if you’re getting a mortgage – so that you can verify the validity of the title and make sure that there are no issues of ownership or liens on the property. Different localities have different requirements for transfer of ownership. Your agent will be able to help verify that you have met all of them.
If you are obligated to pay HOA fees, those will usually have to be paid before close. You will need to turn on utilities in your name. And, you will have to have homeowners insurance in place. This can take some time; therefore, you should do it as soon as your agreement is in place. You must provide proof of insurance at the settlement.
Once all parties have agreed everything is copacetic, they deposit your escrow check and you get the keys! You are now a homeowner – congratulations!
Does this Feel a Little Overwhelming? Don’t Worry, We Can Help!
Hopefully this article helped shed light on the basics of escrow, contingencies, and closing! If you’re head is still spinning, don’t worry – that’s totally normal. Phyllis Ursetta of Integrity Denver is here to help.
Phyllis — a Denver-born-and-raised Italian — has owned her award-winning Denver brokerage for nearly 30 years. Phyllis began her Real Estate career with Dana Crawford in 1991, the early days of the “Loft Craze” in downtown Denver. Then, she started her own Company, Integrity Realty, in 1992.
Integrity Realty earned recognition from Colorado Biz as one of Colorado’s Top 100 Women-Owned Companies for five years running. Additionally, Integrity Realty was recognized as one of Colorado’s Top 250 Private Companies for two years.
Today, Phyllis continues to be a high producer of Real Estate sales in Denver. She is currently available to help folks who are buying their Denver home, and is ready to walk you through every step of the process! Give her a call or send her a text today to start talking strategy. Let her put her decades of experience in this very market to use to make your real estate dreams come true.
