What is earnest money?
Like we learned in the “Components of an offer” post, earnest money is essentially a good-faith deposit to show the seller you are serious about purchasing their home. The money must be delivered to escrow within 2 days after an agreement has been reached. The seller will then remove the property from the market so that you are able to acquire financing and satisfy any contingencies in the contract. If you fail to follow through on your end of the deal, and you back out for a reason not outlined in the offer, you are at risk of losing your earnest money deposit.
How much will I need to have ready?
Earnest money is often 1-2% of the purchase price, but can be much lower or higher depending on the property and situation. Higher earnest money provides more security for the seller if you default and they have to put the property back on the market.
Why is escrow needed and what do they do?
In a real estate transaction, the buyer does not pay the seller directly for the property. Instead, the buyer gives the funds to an escrow company that acts as a neutral third party to collect the required funds and documents involved in the closing process including the initial earnest money check, the loan documents, and the signed deed.They are there to make sure that every party is treated fairly and according to the written agreement.
Title insurance and how it works.
Simply explained, “title” is the right to own, possess, use, control and dispose of property. When you buy a home, you are actually buying the seller’s title to the home. A deed is the written legal evidence that the seller has conveyed his or her ownership rights to you. Before closing, when the actual transfer of ownership occurs, a title specialist will conduct a title examination. The purpose of the title examination is to discover any problems that might prevent you from getting a clear title to the home. Generally, title problems can be cleared up before settlement. But in some cases, severe title problems can delay settlement, or even cause you to consider voiding your contract with the seller.
Before a title insurance policy is issued, a title report is prepared based on a search of the public records. This report gives a description of the property, along with any title defects, liens, or encumbrances discovered in the course of the title search. It is different from other insurance policies in that you pay a one- time fee and it protects against past (as opposed to future) events.
Title insurance will protect you against title defects that were not discovered in the course of the title search. If such a defect were discovered later, your title insurance would cover you. If title problems are severe enough and not covered by insurance, you could actually lose your house. A title insurance policy protects you and your heirs against title defects for as long as you own your home.
