Close of escrow: What it means for home buyers

By now in the home buying journey, you’ve prepared your finances, signed a purchase agreement, conducted a home inspection, and you’re ready for the final step of homeownership. But before you can get the keys, you’ll need to go through a process called close of escrow.

Close of escrow is the part of the home buying process when the transaction becomes official, money is exchanged, and the title is transferred. This transaction is a milestone that many buyers hear about but don’t fully understand. Here’s what you need to know to enter this final step prepared and confident.

Key takeaways:

• Close of escrow is when final paperwork is signed, money is exchanged, and the buyer officially becomes the homeowner.
• The closing date and close of escrow can happen on the same day, but they don’t have to. The closing date is often when documents are signed while close of escrow is the legal completion of the transaction.
• A whole day to close of escrow is usually the result of unresolved issues or contingencies instead of the deal falling through.

What does close of escrow mean?

Escrow is a neutral process where a third party holds money and documents until all contract conditions are met. Close of escrow is when those contract conditions are satisfied and the transaction is completed.

During close of escrow, funds are released, the deed is recorded, and ownership changes hands. After escrow closes, the buyer officially becomes the homeowner. Now, the buyer’s financial responsibility begins and post-closing items like mortgage servicing and escrow accounts for taxes and insurance move forward.

What happens at close of escrow?

Before escrow can officially close, there are a few tasks that need to be completed. Once the sale is finalized, the buyer legally owns the home and the transaction escrow account will be closed.

All required documents are signed

During close of escrow, both the buyers and sellers sign the final paperwork necessary for completing the sale. Signing alone does not finalize the transaction, but it does allow escrow to move forward with transferring funds and recording the deed.

Funds are received and verified

After signing, escrow confirms receipt of the buyer’s funds and any lender’s loan funds, if applicable. Be aware that escrow cannot close until all required money is received, in its place, and verified.

The deed is recorded

Recording the deed with the local government is what will legally transfer ownership of the property. It’s at this point that the buyer officially becomes the new homeowner.

Escrow distributes funds and closes out

Finally, the escrow pays the seller and all other parties according to the closing statement before closing the transaction escrow account. Once the escrow account is closed, the sale is complete.

Close of escrow vs. closing date: What’s the difference?

When closing on a house, there can be a lot of confusion between close of escrow and closing date. To put it simply, the closing date is often when documents are signed, while close of escrow is the legal completion of the transaction.

These may happen on the same day or different days depending on how and when funds are disbursed and the deed is recorded. It’s entirely normal for close of escrow and the closing date to not line up. That difference is usually handled behind the scenes by the lender and escrow officer.

What can delay close of escrow?

Escrow gives buyers and sellers a chance to resolve any last-minute problems. That way, everyone leaves the transaction satisfied. Still, issues can happen that impact your ability to be clear to close. Any delays to close of escrow are usually tied to unresolved issues or contingencies instead of the deal falling through. Here are a few common delays:

• Appraisal issues: An appraisal coming in lower than expected, leading to renegotiation between the buyer and seller.
• Inspection challenges: Any outstanding issues uncovered during the home inspection that have not been fixed or negotiated.
• Missing documents: Failure to supply all required documents.
• Title problems: A title search revealing a problem, like a lien on the property or an undisclosed heir.
• Funding delays: Bank transfer delays, errors in loan documents, or lender underwriting issues.

Most delays are fixable. The key to moving forward is clear communication with the lender and escrow officer to resolve any outstanding issues.

FAQ about close of escrow

Can escrow close early?

Escrow can close earlier than the scheduled date if all contract conditions are satisfied ahead of time. This usually requires completed inspections, final loan approval, signed documents, and all funds being ready and verified.

Early close requires coordination and agreement among the buyer, the seller, the lender, and the escrow officer. Closing escrow early does not automatically change possession or move-in timing, which still depends on what the contract states.

Do I get the keys at close of escrow?

Buyers typically receive the keys when escrow officially closes and ownership legally transfers. Refer to the purchase agreement for more information on key delivery timing since that process is not impacted by escrow alone.

Often, keys are released the same day escrow closes, but some situations will result in keys being delivered later, such as after recording the deed or at a scheduled handoff.

To avoid confusion, buyers should confirm key timing with their agent or escrow officer prior to close of escrow.

What happens if funding is delayed?

Escrow cannot close until the lender’s loan funds are received and verified.

If funding is delayed, closing is postponed until all funds are received, even if documents have already been signed. Despite signing documents, the buyer does not legally own the home until escrow closes. However, funding delays are often logistical rather than deal-ending, with all issues resolved once funds are received.

The bottom line: Close of escrow makes the home sale official

Close of escrow is when the transfer of a property takes place and the buyer legally becomes the homeowner. Approaching close of escrow with preparation, understanding, and confidence will help your process to homeownership pass smoothly and with as few hiccups as possible.

If you’re ready to start your own journey to homeownership, apply for a home loan today with Rocket Mortgage. One of our Home Loan Experts can help walk you through the entire process.