Escrow is an account held by a third party on behalf of the two principal parties involved in a transaction. Since home sale involves multiple steps which takes time that can span weeks, the best way to mitigate the risk of either the seller or the buyer getting ripped off is to have a neutral third party hold all the money and documents related to the transaction until everything has been settled. Once all procedural formalities are over, the money and documents are moved from the custody of the escrow account to the seller and buyer, thereby guaranteeing a secure transaction.
The title company and escrow company will also send you documents to review. The title company will send you the title insurance commitment showing that the party who has title is in fact the seller, in addition to any liens on the title. You should review this document and so should your attorney if you have one. The escrow company will also review it to make sure it says what it should say.
If your available cash doesn't cover your needs, you have several options. First-time homebuyers can withdraw up to $10,000 without penalty from an Individual Retirement Account, if you have one, though you must pay taxes on the amount. You can also receive a cash gift of up to $15,000 a year from each of your parents without triggering a gift tax.
Don't dip too far into your savings though. Try to keep at least 3-6 months of expenses set aside for emergencies. After all, you will be responsible for maintenance and repairs now. If you don't have enough money available in your regular accounts, you can access up to $10,000 without penalties from IRAs for a first-time home purchase and your employer's retirement plan may allow you to borrow from your retirement account with a longer time period to pay off home loans. There's always the "family and friends" route too.
Congratulations, you’ve made it! On closing day, your team (AKA you, your Realtor, lender, and attorney) will meet with the sellers and their attorney to make things official. Your lender or attorney will let you know in advance the total amount of money you’ll need to bring to the closing meeting for your down payment or any closing costs. Bring that amount in the form of a cashier’s check, then sit back and get ready to sign your name—over and over and over.
In a quick conversation with you about your income, assets and down payment, a lender can prequalify you to buy a house. Getting preapproved takes a little more work. A lender will need to verify your financial information and submit your loan for preliminary underwriting. But it pays off when you begin your home search because a preapproval letter shows that you’re a serious buyer.
Your agent will send listings to your cellphone. You'll also pick up House For Sale magazines and read classified ads in your local newspapers. You'll probably spend an inordinate amount of time surfing the Internet for homes. You might even plan afternoon drives to preview neighborhoods. Those are all excellent ways to see what's available. Here are some tools to help you narrow your home buying search.
Before you start working with a Realtor and seriously searching for you home, you should find a mortgage lender and get pre-approved for a mortgage. It shows your Realtor and the sellers that you’re qualified to purchase a home, and it ensures you know the price range you should be looking for. In a competitive market, many sellers won’t consider an offer without a letter from a lender ensuring that the potential buyer can qualify for the mortgage.
Homeowners insurance and property taxes very based on your geographic location. Florida has notoriously high homeowner's insurance rates, where they average $161.08 per month. In Idaho and Wisconsin, rates are a bit lower, averaging below $50 per month, according to Value Penguin. Property taxes average higher in New Jersey, New Hampshire, Texas and Wisconsin and they're lower in Louisiana, Hawaii, and Alabama.
Keep your options open. Some homes might be listed as a two-bedroom, but if the square footage is in the same range as three-bedrooms you’ve been looking at. This could be a sign that it’s a hidden gem with a “secret” third bedroom. Secret bedrooms are often sunrooms that can be easily converted into a bedroom or an extra-large master that could be divided with some drywall.