Escrow: Now What? 

Lansing and Grand Rapids, MI Homes for Sale June 18, 2024
1477
Listed
42
Avg. DOM
$202.08
Avg. $ / Sq.Ft.
$312,000
Med. List Price
1481 Properties
Page 1 of 124

House with stack of money

Escrow: Now What? | Buying a Home in Greater Lansing and Grand Rapids, MI

Buying a home is an exciting journey, but the process can be complex, especially when it comes to understanding escrow. If you're purchasing a home in Greater Lansing or Grand Rapids, MI, knowing what to expect during the escrow process is crucial. This guide will walk you through everything you need to know to navigate escrow confidently and smoothly.

Understanding Escrow: A Beginner’s Guide

What is Escrow?

Escrow is a neutral third-party service that holds funds and documents on behalf of the buyer and seller during a real estate transaction. The primary role of an escrow company is to ensure that both parties fulfill their obligations before the transaction is completed. By using escrow, both the buyer and seller are protected, as the funds are only released when all conditions of the sale are met.

The Escrow Process

The escrow process typically begins once a purchase agreement is signed and a deposit, known as earnest money, is placed into an escrow account. Here's a step-by-step overview of the process:

  • Opening Escrow: This involves the buyer and seller signing a purchase agreement and the buyer depositing earnest money into the escrow account.
  • Inspection Period: The buyer has the property inspected to ensure there are no major issues. Any necessary repairs or negotiations occur during this period.
  • Appraisal and Loan Approval: The lender will appraise the property to determine its value and finalize the loan approval process.
  • Title Search and Insurance: A title search is conducted to ensure there are no legal claims against the property. Title insurance is then purchased to protect against future claims.
  • Closing: Once all conditions are met, the buyer and seller sign the final documents. The escrow company then releases the funds to the seller and the keys to the buyer.

The typical escrow period lasts between 30 to 60 days, depending on the complexity of the transaction and the efficiency of the parties involved.

Why Escrow is Important in Michigan Real Estate

Protecting Buyers and Sellers

Escrow plays a critical role in protecting both buyers and sellers during a real estate transaction. For buyers, it ensures that their earnest money is safe until all conditions of the sale are met. For sellers, it guarantees that the buyer has the funds to complete the purchase. By acting as a neutral third party, the escrow company helps manage and mitigate risks, ensuring a smooth and secure transaction for both parties.

Escrow Accounts for Property Taxes and Insurance

In addition to managing the transaction funds, escrow accounts are often used to collect and pay property taxes and homeowners insurance. This is especially common in mortgage agreements. Each month, a portion of the mortgage payment is set aside in the escrow account to cover these expenses. This approach helps homeowners manage their tax and insurance obligations without the worry of large, lump-sum payments.

For example, in Lansing, the average property tax rate is 1.72%, which means for a home valued at $150,000, you would expect to pay approximately $2,580 annually in property taxes. By using an escrow account, you would pay around $215 each month, making it easier to budget for these expenses.

Escrow: Now What? | Buying a Home in Greater Lansing and Grand Rapids, MI

Escrow in Greater Lansing and Grand Rapids: Local Insights

Real Estate Market Overview

The real estate markets in Greater Lansing and Grand Rapids are both experiencing exciting trends. In Lansing, the median sales price of homes has increased slightly to $195,000 as of December 2022, reflecting a stable and growing market. Meanwhile, Grand Rapids has seen a more significant rise, with the average home price reaching $300,000, up 12.4% from last year.

Homes in these areas are also selling quickly. In Grand Rapids, the average home stays on the market for just 20 days, which is a slight increase from 17 days the previous year. This quick turnover indicates a high demand for properties in the region.

Choosing a Local Escrow Company

When it comes to selecting an escrow company in Greater Lansing and Grand Rapids, there are several reputable options to consider. It's essential to choose a company with a solid reputation for reliability and excellent customer service. Some recommended escrow companies in these areas include:

  • Grand Rapids Title Company: Known for their efficient service and strong local presence.
  • Michigan First Title: Offers comprehensive escrow services with high customer satisfaction.
  • Lansing Title Agency: A trusted name in the Lansing area with decades of experience.

The Escrow Timeline: What to Expect

Opening Escrow

Opening escrow is the first step in the process after your offer on a home has been accepted. In this stage, you will need to deposit earnest money into the escrow account. This deposit is typically around 1-3% of the purchase price. For instance, on a $300,000 home in Grand Rapids, you might deposit $3,000 to $9,000 as earnest money.

You will also need to provide various documents, including the purchase agreement and identification. The escrow company will then set up an escrow account and begin the process of coordinating with the buyer, seller, and any involved lenders.

During Escrow: What Happens Next

Once escrow is open, several critical steps take place. The property will undergo inspections and appraisals to ensure it meets all necessary standards and is valued correctly. In Lansing, for example, the average cost of a home inspection is around $300 to $500, depending on the size and complexity of the property.

The escrow company will also conduct a title search to verify that the property is free of any legal issues. Title insurance is then purchased to protect against any future claims. Negotiations for any repairs or credits based on the inspection results will also occur during this period.

Escrow: Now What? | Buying a Home in Greater Lansing and Grand Rapids, MI

Financial Considerations During Escrow

Escrow Fees and Costs

Understanding the costs associated with escrow is essential for budgeting your home purchase. In Michigan, escrow fees typically range from 1% to 2% of the home’s sale price. For instance, if you are buying a home for $300,000, you can expect to pay between $3,000 and $6,000 in escrow fees. These fees cover services provided by the escrow company, such as holding and disbursing funds, and managing the necessary paperwork to ensure a smooth transaction.

Additional costs can include title insurance, which averages around $200 to $250, and appraisal fees, typically ranging from $300 to $500. It’s important to budget for these expenses to avoid any surprises during the closing process.

Closing Costs and Escrow

Closing costs are the various fees and expenses you need to pay when finalizing your home purchase. In Michigan, buyers can expect to pay between 2% and 4% of the home’s purchase price in closing costs. For example, if you’re purchasing a $250,000 home, your closing costs may range from $5,000 to $10,000.

These costs typically include:

  • Loan Origination Fee: Around 0.5% to 1% of the loan amount.
  • Appraisal Fee: Approximately $300 to $500.
  • Title Insurance: Around $200 to $250.
  • Escrow Fee: 1% to 2% of the purchase price.
  • Recording Fee: $20 to $250, depending on the county.

To get a detailed breakdown of these costs, you can check out the resources on HomeLight and The Mortgage Reports.

Navigating Common Escrow Challenges

Delays in the Escrow Process

While the escrow process is designed to ensure a smooth transaction, delays can sometimes occur. Common reasons for delays include issues with the property’s title, complications with financing, or extended negotiation periods for repairs. To avoid these delays, it’s important to stay proactive and maintain clear communication with your escrow officer, real estate agent, and lender.

Ensure that all necessary documents are submitted promptly and be prepared to respond quickly to any requests for additional information. By staying organized and responsive, you can help keep the escrow process on track and avoid unnecessary delays.

Contingencies and Their Role

Contingencies are conditions that must be met for the sale to proceed. Common contingencies include home inspections, appraisals, and financing approvals. These contingencies protect both buyers and sellers by ensuring that all necessary conditions are satisfied before the transaction is finalized.

For instance, a financing contingency ensures that the buyer can secure a mortgage before the sale is completed. If the buyer is unable to obtain financing, they can back out of the deal without losing their earnest money. Similarly, an inspection contingency allows the buyer to negotiate repairs or credits if significant issues are found during the home inspection.

Escrow: Now What? | Buying a Home in Greater Lansing and Grand Rapids, MI

Final Steps: Closing Escrow

Preparing for Closing Day

As you approach the final steps of your home purchase, it's essential to be well-prepared for closing day. Here’s a checklist to help ensure everything goes smoothly:

  • Clear Your Schedule: Plan to spend at least two hours at the closing appointment. This ensures you have ample time to review and sign all documents without feeling rushed.
  • Final Walk-Through: Schedule a final walk-through of the property a few days before closing. This is your opportunity to confirm that all agreed-upon repairs have been completed and the property is in the expected condition.
  • Review the Closing Disclosure: By law, your lender must provide the Closing Disclosure at least three business days before closing. This document details your loan terms, projected monthly payments, and all closing costs. Review it carefully to ensure there are no surprises.
  • Gather Necessary Documents: Bring a government-issued photo ID, such as a driver’s license or passport, to the closing. Additionally, prepare a cashier’s check or arrange for a wire transfer to cover closing costs and any remaining down payment.

For more detailed information on what to bring to closing, you can visit Rocket Mortgage.

After Closing: Next Steps

Congratulations! You’ve closed on your new home. Here’s what to expect and what you should do next:

  • Recording the Deed: The deed to your new home will be recorded with the local county recorder’s office, officially transferring ownership to you. This process can take a few days to a few weeks, depending on the county.
  • Receiving Keys and Possession: Once the deed is recorded, you’ll receive the keys to your new home. Make sure to verify with your real estate agent or the seller when and how you will receive the keys.
  • Setting Up Utilities and Services: Contact utility companies to set up services such as electricity, water, gas, and internet. It’s a good idea to do this a few days before moving in to ensure everything is up and running when you arrive.
  • Change of Address: Notify the post office of your new address to ensure your mail is forwarded. Update your address with banks, credit card companies, and other important services.

Escrow: Now What? | Buying a Home in Greater Lansing and Grand Rapids, MI

Tips for a Smooth Escrow Experience

Communication is Key

Clear and constant communication with your escrow officer is essential for a smooth transaction. Your escrow officer acts as a neutral third party to ensure all conditions of the sale are met before the funds and property are exchanged. Regular updates and check-ins with your escrow officer can help prevent misunderstandings and delays.

Be proactive in providing necessary documents and responding promptly to requests. For example, if your escrow officer asks for additional identification or updated financial documents, providing these quickly can keep the process on track.

Staying Organized

Organization is crucial during the escrow process. Keep all your documents in one place, whether digitally or in a physical folder. This includes your purchase agreement, inspection reports, loan documents, and any correspondence with your lender, real estate agent, and escrow officer.

Create a timeline checklist to track important dates and deadlines. This can include the date by which you need to complete the home inspection, when the appraisal should be done, and the closing date. Using a checklist can help ensure you don't miss any critical steps and that you are fully prepared for each stage of the process.

For tips on staying organized and managing your escrow timeline, check out Lightspeed Escrow.

Summary

In this comprehensive guide to understanding escrow in Greater Lansing and Grand Rapids, MI, we’ve covered everything from the basics of escrow to navigating common challenges and preparing for closing day. By understanding the escrow process, you can ensure a smooth and successful home-buying experience. From selecting a reputable escrow company to maintaining clear communication and staying organized, these steps will help you navigate escrow with confidence. With careful preparation and attention to detail, you can look forward to the excitement of moving into your new home, knowing that you’ve handled each aspect of the transaction efficiently and effectively.