You found your new home and entered into a contract with the seller. Now what?
While the house hunt might have felt long, things will start moving faster with a contract and a negotiated closing date. Still, several necessary steps remain before you can move in.
Understanding those next steps, including what happens during escrow, what earnest money is, and what the common contingency clauses and reports include, will empower you as a home buyer.
This is the first of a three-part series on purchasing a home. Explore Part 2: Contingencies clauses and reports and Part 3: Closing your home purchase.
As always, the lending team at Fremont Bank is happy to provide assistance and answer any questions.
Understanding escrow
To begin the formal escrow process, you or your real estate agent provide a few items, including the signed purchase contract with all addendums and the name, phone number, and email address of the title company used for the transaction.
Once escrow opens with the title company, your lender works to underwrite your loan.
What to expect in escrow:
This fee helps to offset the cost of the appraisal that a lender must pay to make sure the home is worth the purchase price and there are no major health or safety issues.
By this point, you should know what program and rate you prefer, but look to your loan officer for guidance on the best strategy to lock in the best rate and program to meet your financial objectives. Rates move daily, so expect some fluctuation.
Check that everything needed from the pre-approval process is complete. Submit these items as quickly and completely as possible to ensure underwriting can review and approve your loan. It is not uncommon for underwriting to need additional information during the escrow process, but rest assured, your loan officer streamlines as much of it as possible. Expect your loan officer and processor to update you on any items needed.
While the formal insurance policy is not bound until a lender is ready to fund, it is important to decide on a home insurance policy early and provide the quote to the lender. This will ensure that we have the insurance agency information on file and do not have any delays in meeting the close of escrow date.- Do not make any changes to credit or employment
During the escrow process, your loan officer continues to monitor credit and looks for any material changes like new account openings or missed payments. Avoid the temptation to make any large purchases — like buying new furniture for the home — until after closing. Your employer verifies that nothing has materially changed in your employment status before funding. If a job change occurs, let your loan officer know as soon as possible.
Understanding earnest money
As part of the contract, you agree to put down a percentage of the home price as an earnest money deposit.
Earnest money is a goodwill gesture to ensure you are serious about buying the home. While typically around 1-3% of the total purchase price, this amount can vary.
First, the title company receives this money via wire and holds it until the transaction is complete.
In return, the seller marks the listing as pending. This shows they are under contract and no longer accepting offers, so you do not have to compete with new offers as you move through the escrow process.
As part of the earnest money, the buyer and seller agree on a window of time to complete and sign off on up to four important parts of the transaction, called contingencies.
Have questions about buying your first home? The team at Fremont Bank is here to answer them.