Last Updated on August 4, 2021 by Maggie Sutton
Buying a home can sometimes be a long and difficult process. But when you find a home you love and your offer is accepted, the finish line is near. This period is commonly referred to as “being in escrow” and there are a number of things you need to do — and not do — before closing. To help you achieve your dream of home ownership, here’s what you need to know about escrow to ensure you can close on your new home.
The Do’s of Escrow
1. Open an Escrow Account
The first thing you’ll have to do is open an escrow account. This is where your earnest money will be deposited until closing. The escrow company acts as a trusted third party to help manage the deal until closing day. The escrow officer will also collect paperwork and be a partner throughout the closing process, so be sure to choose an escrow company you know and trust. Your real estate agent may be able to offer suggestions of escrow officers they work with often.
2. Complete All Necessary Paperwork
“Being in escrow” basically means “drowning in paperwork,” or at least it can feel that way sometimes. From disclosure forms to inspection reports and insurance information, there are a lot of things to keep track of. Your escrow officer and real estate agent will be a tremendous resource here, letting you know what needs to be completed and when. It’s your job to hold up your end of the partnership and get everything completed in a timely manner.
3. Maintain Solid Communication
As noted above, there will be a lot of things that demand your attention when in escrow. The best way to keep the process moving forward smoothly is to respond quickly to any correspondence from your real estate agent, lender or escrow officer. Make sure you’re clear in your communications, and don’t be afraid to reach out with any questions. Your team is there to assist you every step of the way.
4. Schedule Your Final Walk Through
Your final walk through is your last chance to tour the property and identify any outstanding issues before closing. The main thing to look for here is to make sure that any repairs or updates outlined in the purchase agreement were taken care of. Come prepared with a list of things to inspect and make sure you do your due diligence so you don’t miss anything important.
The Don’ts of Escrow
1. Don’t Buy New Furniture Sets
If you’re in escrow, you’re likely very excited about your new house and ready to buy lots of new furniture or décor to make it perfect when you move in. But, this is a mistake. Here’s why: if you put thousands of dollars of furniture charges on a credit card, or even if you’re buying on store credit, it will change your total debt-to-income (DTI) ratio, which can affect your credit score. If your credit score drops too low, it could cause your lender to hold up or even cancel the deal. So, save your major purchases for after closing when you can redecorate to your heart’s content.
2. Don’t Buy or Lease a Car
Just as with furniture, buying or leasing a car can derail your home buying process. The simple act of the car dealer running your credit history and looking up your credit score can cause you to lose points on your score, again putting your mortgage in jeopardy. Stick with the car you have now; save all major purchases for after closing. This also goes for any kind of loan or co-signing on someone else’s loans.
3. Don’t Switch Jobs
Trading up to a new job that pays more may seem like the perfect idea when moving into a new house. But if you can hold off until after closing, the process will be a lot smoother. That’s because your lender has to verify your employment. So, if they call your job and find out you no longer work there, it could be a problem. If you get an offer you simply can’t refuse, be sure to let your lender know right away to keep the process moving forward.
4. Don’t Use a Cash Advance
It may be tempting to use the cash advance option on your credit card to increase your down payment or lower your out-of-pocket closing costs. But cash advances often come with extremely high interest rates and you’ll only be adding to your credit card balance, which again, can negatively impact your credit score. You’re better off dipping more into your savings to come up with any extra cash.
By following what you need to know about escrow, you can avoid major issues with your mortgage, ensure a straightforward escrow process and secure the home of your dreams.
Want to save money on your next home purchase? Register with Homes for Heroes today and our dedicated real estate and mortgage specialists can help you save an average of $2,400 when buying and/or selling a home.