How the Escrow Company Processes Your New Home Loan

By Kelly Richardson Columnist

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An escrow company is a crucial part of the mortgage process. If you're in the process of obtaining a new home loan, you will have to deal with an escrow company at some point. Here's what an escrow company is responsible for and how to spot and avoid an unscrupulous organization.

When applying for a mortgage, escrow is an agreement between parties to place money in the care of an outside third party for later distribution. In terms of a new home loan, this money could be in the form of a good faith deposit or some other prepayment. Once the terms of the mortgage contract are satisfied, the escrow company would then distribute the funds to the appropriate parties as stated in the contract.

Escrow Company & Your Home Loan

  • » Escrow Agents. Real estate agents can act as escrow agents if they accept money in the preliminary stages of a new home loan acquisition.
  • » Other Services. Escrow companies can also provide other helpful services such as calculating closing costs for mortgage transactions.
  • » The Specifics. Escrow companies place mortgage funds and other valuables into a trust account that is periodically audited in accordance with state and federal mandates.
During the mortgage process, it is possible to become a victim of a dishonest escrow company. This can result in lost money as well as the opportunity to close on your new home loan. Heres how to recognize them.

Spotting a Sketchy Escrow Company

  • » Being Directed. While most recommended escrow companies are viable, don't be forced into using a particular one. You have a say-so in the decision.
  • » Contact Them Directly. Call their office, talk with an agent, and verify that they perform the services that will satisfy your mortgage terms.
  • » Payment and Verification. Your escrow payments should be made to the company as opposed to an individual, and you should get a receipt for these deposits.
While an escrow company is necessary to complete the mortgage process, knowing a bit about how they work will help you to feel confident as you apply for your new home loan.

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US Department of Housing and Urban Development

About the Author
Kelly Richardson covers the real estate scene in major cities across the country. His articles appear in educational journals, periodicals, and e-zines.

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