Home Buying Basics: From Escrow To Title Insurance

After all the searching, your offer has been accepted and you’re on your way to home ownership! But what is involved in closing on a house? What is escrow? Do you really need title insurance?

The Terminology: Escrow, Earnest Money And Title Insurance

Home buyers have many terms thrown at them as they begin the process of buying a home. By the time an offer is accepted they’ll already be familiar with realtors and mortgage lenders. Next, it is on to closing terms. Escrow, earnest money and title insurance are the most common terms home buyers will hear and want to become familiar with. Each of these terms represents something different and each one is generally needed to close on a property.

Making Sense Of The Different Pieces

Even before an offer is accepted, a buyer will hear the term “earnest money.” When an offer is placed, a realtor will suggest an appropriate amount of earnest money to include with the offer. At this point, a potential buyer needs to provide the realtor with a check for that amount. Earnest money is not paid directly to the seller, but rather serves as an indication of good faith to the seller that a buyer intends to follow through on the purchase of the property. So where does that money go?

This is where the term “escrow” comes in. The funds are held “in escrow” until the closing is complete. The company, or agent, receives the check a buyer gives to the realtor and that agent holds the check until every piece of the closing transaction is completed. It is their job to ensure that no funds change hands until all of the closing paperwork is complete. At closing time, the escrow funds will typically be used to cover closing costs, or they may be refunded to you if closing costs are paid for in a different manner. If the seller rejects the buyer’s offer, the buyer receives their earnest money back immediately.

After The Offer

After an offer is accepted and the earnest money is safely in escrow, the paperwork gets moving to transfer ownership of the home. To start this process, a title company will get involved. This company will put together an abstract. The abstract contains detailed information about the location and history of the property. A formal survey will be ordered and research completed to ensure that the property is free and clear of liens or past due taxes. The company also ensures that all necessary state and federal paperwork is filed. It is after this work is complete that title insurance comes in to play.

Most mortgage companies will require title insurance. This insures the property against past liens. Title insurance is usually required, but if not, it’s still a good idea to pay for this protection. Title insurance will protect you from past liens, defects, unforeseen claims or taxes owed.

Buying a home is an exciting time, though it can be stressful. Learning about the process will help make the entire experience a more positive one.

Chris Harmen – writes for Title Junction

DISCLAIMER: Neither Indiana USDA Mortgages (IndianaUSDAmortgages.com) nor Luminate Home Loans is affiliated with any government agencies, including the USDA.