Escrow: Now What? aka Contract to Close
Congratulations, you are on your way to owning some real estate! Follow these suggestions, along with the direction of your Realtor, to ensure that escrow and settlement go as smoothly as possible.
You'll be asked for a down payment on the purchase of the property. Depending on the type of mortgage you are getting, you can choose to put down as little or as much as you want. The more you put down towards the total purchase price, the less time it will take to pay off and the less you'll pay overall for the property. However, I always recommend asking your lender to show multiple scenarios to see how it will impact the monthly payment.
During this period of purchasing your home, you will need an escrow or settlement company to act as an independent third party to know when and who to give your money to get the deed in your name. The escrow or settlement company will hold your deposit and coordinate much of the activity during the escrow period. This deposit check may also be held by an attorney or in the broker's trust account. Make sure that there are sufficient funds in your account to cover this check, as it can impact the contract's validity.
The deposit check is also referred to as earnest money or trust money in Tennessee. This amount of money will be deposited. When the sale goes through and closes, this money will be applied to the purchase of the property. If the sale is not consummated, you may be entitled to receive all of your deposit back, less standard cancellation fees. In certain instances, the seller may be able to retain this money as liquidated damages.
1. Binding Contract, Inspection Contingency, Appraisal Contingency. The period that you are "in escrow" is often 30-45-60 days but can vary. Each item specified in the contract must be completed successfully during this time. By the time you have opened escrow, you have come to a binding agreement with the seller on the terms of this purchase. Each contract is different but, in most cases, will include an inspection contingency and appraisal contingency. Where the results have to prove satisfactory and unsatisfactory results can result in the cancelation of the contract without penalty.
2. Financing Contingency. Once the contract is signed by all parties, you have a period of time to secure funding. If you cannot secure funding by the time allowed within the contract and the seller will not provide a written extension of time, you must decide whether you want to remove the contingency and take your chances of getting a loan. Or, with much due diligence, choose to cancel the purchase contract.
3. Marketable Title. The seller will be required to provide a marketable title. The attorney or title officer will have a title search performed and review the title report. The title must be "clear" to ensure that you do not have legal issues regarding your ownership. A lender will require a lender's title policy that only protects them. Make sure you request an owner's title policy, as this protects you by ensuring the property has a marketable title and no unpaid debts in compliance with local and state ordinances.
4. Homeowner's Insurance. To avoid delays or complications, you'll want to secure homeowners insurance sooner than later. In most cases, it will be required before you can close the sale. Due to such requirements, weather-related coverages, and flood insurance, obtaining this insurance may require a lengthy period. It would be in your best interest to apply for insurance as soon as possible after the contract is signed.
5. Utilities. Sometime before closing, reach out to the local utility companies providing services at this property. Inform them that you are purchasing this property, inform them of your closing date, and schedule to have the service transferred into your name on the date of closing and when you close escrow.
6. Final Walk-Through. You and your Realtor will schedule a time, right before closing, to do a final walk-through. It is preferred that the seller has already been able to move out, but this isn't always possible. Now is the time to make sure that the property is exactly as the contract says it should be. The items to remain are present, they've left the correct appliances, no one swapped a light fixture or mirror, the items to be removed have been, the repairs have been made, and any items that should be included in the sale are there today. The key thing here is the property is in the same or better condition as when you originally contracted the property.
You have made it! All that remains is to walk into closing, sign, and smile. Congratulations on this new home and the closing of this successful adventure!