As a buyer of a home in escrow, what do I need to know about depositing funds into escrow? This is a great question and one we get all the time! There any many things to consider which may not be obvious to a buyer.
The first thing to be aware of is that when you make an offer on a home, you will generally offer to make a “good faith” or “earnest money” deposit into escrow of an initial small amount, usually no more than 3% of the selling price. This small deposit demonstrates to the seller that you are a serious buyer, even though it will be used at the close of escrow toward the down payment and/or closing costs (and doesn’t go into the seller’s pocket).
In California, the typical purchase agreement used by Realtors requires that this earnest deposit be placed in escrow, within 3 business days of the buyer and seller agreeing to the purchase agreement, also known as the “acceptance date.” As a buyer, it is essential that you make this money available right away so that it can be deposited into escrow. North Orange County Escrow and most places accept cashier’s check or wire, or a personal check for the earnest deposit. Just keep in mind, we will cash your check right away.
The second thing to consider about depositing funds into escrow is how they are viewed by your Mortgage Lender. To verify that you are a safe prospective borrower, the Lender conducts thorough verifications of employment, credit score, the value of the property, AND they will verify that you have the money not only to close escrow, but even enough for in “reserve” to cover a couple months or more of future payments. It is important to discuss with your lender your “planned source of funds” early on, because any funds used to close escrow need to be verified before closing.
This means they want to see where the funds came from, be it long term savings, a bonus, profit on stock, gift from a relative, etc. Communication is key here because if for some reason the funds cannot be verified by the lender, it will cause a delay in the loan being approved and also in closing escrow. We definitely don’t want that!
The required funds for closing, including balance on down payment and your share of closing costs, need to be WIRED into escrow approximately 4 days before closing. As such, it is wise to determine with your bank their requirements for wire transfers a couple of weeks before closing to avoid last minute surprises. Some banks require a full 24 hours or more to wire funds, and most have a cutoff time for sending wires around mid-day. And some banks actually don’t issue wire transfers so funds might need to be moved to another banking institution before they can be wired (if so discuss this with your LENDER). If you plan on using funds from a retirement or investment account, it could take several days for them to be released especially when involving the sale of stock. Give yourself plenty of time to have funds available to wire in time for closing.
If you have any questions, speak to one of your knowledgeable Escrow Experts today at North Orange County Escrow!