How Escrow Deposits Work

Today mortgage expert Kristin Jamieson joins me to clarify how an escrow deposit works and why they’re critical for homebuyers to understand.

Ultimately, buyers must make an escrow deposit to the title company within a certain amount of time after the house goes under contract. After the house is under contract, it becomes an exciting time for people, especially those who fought through a bidding war to get to that point. However, in their excitement, they don’t always think about the next steps they should take.

Wherever the funds for the deposit come from, lenders are required to document their origin and transfer. The deposit is part of a legal real estate transaction; it’s not just a deposit on the contract between the buyer and seller. The funds of an escrow deposit are either going toward the buyer’s down payment or closing costs in the transaction, so lenders like Kristin need to know where they’re coming from.

One problem that Kristin has noticed lately is that people are paying their escrow deposits in cash. From a lender’s standpoint, it’s impossible to verify where cash comes from. Your lender needs to see either a copy of the canceled check or a copy of the money order, depending on which way the borrower decides to do it. They also need to be able to track the funds coming from the borrower’s bank account.

Another situation where problems arise is when family members try to help the buyer purchase a home by covering certain fees. This isn’t a problem in and of itself; however, those funds are considered gifts, and some loan programs with gift funds have certain requirements. For example, if someone else makes the escrow deposit on the buyer’s behalf, they might need to show their bank statements and/or write a gift letter stating that the buyer won’t have to repay those funds.

Lenders like Kristin just want to help make the home buying process as stress-free as possible. As long as they can verify where those funds come from, you should be in the clear.

Even though no one is really excited to pore over their bank statements, this is still an important topic to understand. The more people who are educated about it, the more they’re empowered to be responsible, savvy consumers who can avoid the speedbumps that can slow or derail a transaction.

If you’d like to speak with Kristin in more detail, you can reach her at (352) 242-1535 or at kristin@KristinJanFl.com. Otherwise, if you have any questions about home buying or real estate in general, don’t hesitate to contact the Mathison-Klein Group! We’d love to hear from you.

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