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    Who Holds Your Earnest Money Deposit And How Escrow Works

    A happy couple

    Escrow provides security and reassurance to both parties in a real estate transaction. It can help protect you from non-fulfillment of conditions by the counterparty in a sale. Here’s what you need to know about the benefits of escrow.

    What is Escrow?

    Escrow refers to an arrangement in which a neutral party – usually an escrow company – holds funds on behalf of the buyer and seller until the conditions of the sale are met. An escrow account is a designated bank account with predetermined conditions for the release of funds. An escrow agent acts as an intermediary and ensures that both parties uphold their end of the bargain.

    The different types of escrow accounts in real estate transactions include:

    • Earnest money – When buying a home, it’s common for buyers to make an earnest money deposit, which typically covers 1% to 2% of the purchase price. The earnest money deposit will be held in escrow until the sale is finalized. The amount will go towards the down payment or closing costs. If the conditions of the sale aren’t met, the money will be remitted to either the buyer or seller depending on terms of the contract.

    • Property taxes and insurance – A mortgage escrow account is often managed by a lender or mortgage provider. The funds in the account will go towards property taxes, homeowners insurance, or mortgage insurance after the purchase of a home.

    • Unresolved items – This escrow account covers unresolved items, such as repairs or improvements, in a real estate contract. The settlement company may hold the funds in escrow until the terms of the contract are fulfilled. The funds will either be returned to the seller or go towards outstanding bills.

    When does escrow take place during the buying or selling process?

    The escrow process usually takes place after the seller accepts an offer and before the buyer takes possession of the property. The first step in the escrow process is opening an account. In most cases, buyers are required to open an escrow account if their down payment is below 20% of the purchase price. They may also be required by a lender to have an escrow account.

    If the buyer is taking out a government-backed loan, they have to open an escrow account. Although the Veterans Administration typically does not require buyers to open an escrow account for a VA loan, the lender that will finance the loan may require one.

    How does escrow work? (Who holds your earnest money deposit?)

    During escrow, the buyer will take the following steps:

    • Agreement – The buyer and seller must agree on the terms and conditions of the sale, including the purchase price and contingencies that must be met before the sale can be finalized.

    • Deposit – The buyer deposits money or assets into an escrow account to be held by a neutral third party.

    • Contingencies – The buyer and seller must satisfy all the agreed-upon conditions before the sale can be completed. These conditions usually include securing financing, making repairs, or having a home inspection conducted. The escrow agent will make sure that all the conditions have been met before releasing the funds to the seller.

    • Closing documents – Once the conditions of the sale have been fulfilled, the buyer and seller will sign the closing documents and transfer the ownership of the property to the buyer.

    • Release – The escrow agent will release the funds to the seller once the transaction is complete.

    The Benefits of Working With an Escrow Company

    There are many benefits to working with an escrow company:

    • Security – The escrow company holds the funds until all parties fulfill their obligations, making sure that no one else takes the money or property until then.

    • Impartiality – An escrow company does not have a vested interest in the outcome of the transaction, which helps build trust and prevent conflict.

    • Convenience – The company can provide valuable services like drafting contracts, verifying documents, and coordinating with both parties to help save time and effort.

    • Protection – Working with an escrow company offers protection against scams and fraudulent activity by performing due diligence and making sure that all submitted documents are authentic.

    Other relevant information

    • In D.C., the law requires title insurance producers to get licensed and outlines conditions for providing escrow and settlement services.

    • The Code of Maryland outlines the roles and responsibilities of escrow agents in residential real estate transactions.

    • The Code of Virginia requires escrow agents to be licensed and regulated by the state and describes the requirements for facilitating escrow.

    Get in Touch With Integrity Title & Escrow Company Today

    Integrity Title & Escrow Company has been protecting the interests of buyers and sellers in Maryland, Washington D.C., and Virginia for over 24 years. Call our team at 410.581.6861 or send a message here to learn more about the benefits of escrow.

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