What Is An Escrow Officer?
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When you buy a home, both you and the seller are benefitting from the transaction. With the amount of money at stake, a neutral third party helps ensure everything is carried out as planned and that the terms of the deal are honored. This person is often to referred to as an escrow officer or agent.
Escrow officers act as a sort of middleman, managing many of the important pieces of the transaction, such as the title-related services.
Below, we’ll break down what escrow officers do and how their role fits into the homebuying process.
What is an escrow officer?
An escrow officer is a unbiased third party who ensures the mortgage transaction is carried out correctly for both the homebuyer and home seller. Depending on local laws, an escrow officer might be an attorney or an officer from a title company.
Escrow officers help manage the closing documents and money. If there are any deposits made prior to the mortgage closing, such as an earnest money deposit from the buyer to the seller, those funds are held in an escrow account and monitored by the escrow officer until it’s time for those funds to be delivered to the seller.
Another type of escrow account holds a portion of your mortgage payments each month — namely, your property taxes, homeowners insurance and, if applicable, mortgage insurance — and is managed by your mortgage lender. The lender adds these costs to your monthly payment and sets the money aside in an escrow account to pay your taxes and insurance directly when they’re due.
Your total bill for both taxes and insurance is divided into 12 monthly installments and added to your monthly mortgage payments to take the pressure off of you having to pay a lump sum for those expenses each year.
An escrow officer’s role and responsibilities
Escrow officers are a vital part of the homebuying process, said John Stearns, a senior mortgage loan originator at American Fidelity Mortgage Services in Milwaukee. One of their main obligations is making sure all the documents related to your home purchase are accurate and correct.
“They make sure the numbers on the seller’s side are right; they make sure the numbers on the buyer’s side are right,” Stearns said.
Escrow officers are also responsible for reviewing all closing documents and explaining to you each document you’ll be signing at the closing table. They also disperse the money needed to complete the transaction, he added.
Freddie Mac also says an escrow officer is able to answer general questions about your home loan, but unable to share legal advice.
Fees vary for escrow officers and escrow services, but generally they may fall between 1% and 2% of the final purchase price. Another estimate gives a range from $250 to $1,500. The cost for these services might be split between the homebuyer and seller.
Who chooses the escrow officer?
Usually, the loan officer chooses the escrow officer. In cases where there are two escrow officers, the seller’s listing agent would choose the second officer, Stearns said.
Stearns said in most cases, his buyers go with the company he has an existing relationship with, but maybe once a year a homebuyer will suggest working with a different company.
“I’m familiar with that company, my closing department’s familiar with that company,” he said. “We have a good relationship with one in particular; we try to use them every time.”
Still, if you want to do your due diligence before committing to your lender’s preferred choice, you have the option to choose your own escrow officer.
On the Loan Estimate, one of the listed services you can shop for is the person who handles your closing — an escrow officer or “settlement agent,” as the Loan Estimate template refers to them. The other services you’re allowed to shop for include the title search, title insurance, survey fee and pest inspection fee.
The bottom line
Escrow officers help facilitate the closing process by ensuring that all the documents and financials check out. They can assist in clearing up confusion you may have about the general closing process and the paperwork involved, but you shouldn’t look to them for advice about your home purchase. Consult your lender or real estate agent instead.
You’re able to shop around for your escrow and title services as part of your home purchase. If you choose to do so, be sure you ask for recommendations from trusted family members, friends and colleagues. You just might save money.