How Long Does Escrow Take? – Complete Closing Timeline
When you complete a home purchase or sale, you may have to quickly get up to speed on how the process works. There are several steps involved, both on your part personally and from a legal angle, to complete the sale. One of the questions you may be asking your real estate team is, “How long does escrow take?”
Escrow is one of the terms associated with the real estate sales process. Not only is it important to understand what this phrase means, but it’s helpful to have a realistic outlook on the timeline. In this post, you’ll be able to grasp this concept more accurately and know what to expect in terms of days to completion, legal requirements, and more.
What is Escrow?
The term escrow refers to the legal account in which a third party institution (often a lender) holds a large sum of money that’s intended for a real estate purchase while specific conditions to fulfill the sale are met.
Occasionally, buyers and sellers are confused by the two types of escrow accounts used during the purchase process. Once you know the differences, it becomes easier to understand.
- Pre-sale: Money for a deposit is placed into an escrow account to demonstrate “good faith.” This means that the potential buyer intends to follow through on the sale.
- Post-sale: Lending institutions use escrow accounts to make future payments related to homeowners insurance and property taxes. This type of escrow account can exist for the full life of the mortgage.
Why Do You Need It?
Having an established escrow account is a standard requirement for most lenders. Not only does the pre-sale escrow show your intentions as a buyer, but the post-sale escrow account funds major expenses (like taxes and insurance) throughout the life of the loan.
Although you could save on monthly payments and pay for these out of pocket, it’s often helpful to have these funds squared away in the early years of your mortgage.
How Long Does it Take for Escrow to Close?
The time that passes between opening the initial escrow account and the final closing paperwork can vary based on several factors.
The timeline depends on whether you buy an existing home, build a new property, or work directly with a seller (without a real estate agent). Some lenders are able to complete a 45-day escrow timeline with ease.
Escrow Period–The Closing Timeline
In the sections below, discover what each step in the escrow process involves and how long you can anticipate each stage to last.
1. Make and Settle an Offer
The first step is for the buyer and seller to come to an agreed upon price. This can happen after a few days or weeks of negotiations, conversations with real estate agents, and settling on minor details or changes to the property. The escrow timeline begins only after the seller accepts an official offer.
Many negotiations take about a week, since there are several parties involved who don’t have direct contact with one another.
2. Initial Escrow is Opened
Once the buyer has the purchase price in mind, they must proceed with depositing earnest money into a new escrow account. Typically, this amount is around 1-2% of the total home purchase price, and it must be deposited in cash. In more competitive markets, the percentage of earnest money increases.
This phase can last anywhere from one to three weeks, depending on how long it’s needed and when the home inspections are scheduled.
3. Home Inspections Occur
During the home sale, there may be several different types of inspections that take place. The length of these inspections, and their findings or results, could shorten or extend the escrow process. Most inspections and appraisals are designed to find:
- The home’s appraised real estate value
- Major structural deficiencies
- Pest problems, particularly with termites
- Electrical, gas, or water irregularities
The inspection process itself only takes about a day, but any responses or actions needed as a result could take a few weeks to resolve.
4. Buyer Receives Loan Approval
The mortgage process includes a critical pre-approval step in which the buyer must submit personal financial information that demonstrates qualification for a new loan. This might also be referred to as mortgage underwriting. An advanced approval shows that there will be future funds available once final documents are signed.
Buyers should set aside time to secure all of the financial documents that the lender requests. Once the lending institution has these, they can often provide a pre-approval within a few days.
5. Lender Funding is Complete
Depending on the type of home sale, there are a few steps that may take place prior to final lender funding. This includes repairs, appraisal checklist items, and final maintenance. Once those steps are settled and the buyer confirms, the buyer and lender can move forward with final funding.
During this time, the buyer should not make any major financial changes, such as opening new credit accounts or switching employment. This step happens about four weeks or a month after the initial offer is discussed.
6. Final Walk-Through and Closing
When there are less than 5 days left before the final closing meeting, the buyer can choose to do a final walk-through before agreeing to the contract. An appointment will be set up with the buyers, a settlement agent or attorney, and potentially a title agent.
These parties have the mortgage information from the lender on hand and help facilitate the final sale and legal exchange of all necessary documents.
7. Transfer of Title and Ownership
On the final day of the escrow timeline, the title of the property passes from the seller to buyer. This is a legal transfer of ownership, and all previous rights of the original owner are forfeited. After this point, the new owner can use funds in the post-sale escrow account to pay for insurance and taxes.
Anticipating Escrow Problems
When considering the question, “How long does escrow take?” it’s impossible to give an exact answer due to the many variables along the way. However, being proactive about potential problems can reduce the stress of unexpected holdups and surprises.
These setbacks could include:
- Making large purchases on credit prior to closing (in such amounts as to change an existing credit score)
- Choosing to work with title agencies that are slow or inexperienced
- Extended timelines when working with a bank, especially for wire transfers
- Existing liens or judgments on a property that prevent access to a clean title
- Contingencies, such as when a new buyer can’t sell their current home and the new sale depends on a closed deal
- Failed appraisals in which the value falls well below the asking price of the home
- Inspection issues that reveal significant damage that cannot be fixed in a reasonable amount of time
While it’s difficult to predict the future, many escrow problems can be anticipated or avoided. To speed up the process, always work with trustworthy third parties and be diligent when it comes to your personal financial responsibilities.
Save Time on the Home Buying Process
At eClosing, we understand that buying or selling a home is one of the most significant decisions that people make. Not only that, but it’s often full of steps and procedures that the average buyer isn’t familiar with. Fortunately, with the basics in mind, the process doesn’t need to be overwhelming.
To take full advantage of greater efficiency and faster closing times during the purchase process, check out eClosing’s specialized technology that makes life easier for buyers and sellers alike.