Clearing up escrow confusion

When you buy a house, you're going to hear the word "escrow" thrown around often. It's one of those terms that people just accept without really knowing what it is. Then later, there is confusion because they forget that when you purchase a home, usually there are two escrows involved.

First things first. Here is the definition of escrow: a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled. (Oxford Dictionary)

When you make an offer on a house, your agent will have you write an earnest money check, which will be deposited in escrow while you and the seller negotiate the details of the contract. The check is deposited with an impartial third party - an escrow agent, title agent, or closing attorney - who is not involved in the transaction.

They manage all the incoming paperwork and money from buyers, sellers, lenders and agents. In addition, they handle the title search, schedule the closing meeting, disburse the funds and send the paperwork to the county. When all of this is completed, escrow closes.

You'll receive a statement of escrow closing. Make sure to look this over carefully. If you spot any discrepancies, report them to the closing agent immediately. This statement should be kept with your most important financial records. You’ll need it when you file taxes, too.

Your second escrow

You'll also have escrow for taxes and insurance, which can be abbreviated as "T&Is." Your mortgage lender may require you to begin funding this escrow account by making a payment into the account at closing. They may ask for the total of the first year's estimated T&Is upfront or they may add it to your monthly payment.

No matter how payment is arranged, the escrow is revisited every 12 months. If you overpaid, you may get an escrow refund. This is common. Your lender will then recalculate the cost for taxes and insurance and the amount that goes into your escrow fund will change. Because the value of your home will go up and down, you may see a fluctuation in your monthly payment from year to year.

Understanding the home inspection process

Although a home inspection is not required by law, it is always a good idea to have an objective third party inspect a home you wish to buy. A reliable home inspector can save you literally thousands of dollars in unexpected home repairs.

Paying for the inspection

Usually, the buyer pays for the inspection. But everything in real estate is negotiable. Put it in the contract to split the cost of the inspection to see what the seller says. If they are motivated – and confident in what the inspector will find – they may agree, which will save you a few hundred dollars.

What home inspectors look at

Home inspectors start by looking at exterior features: outside walls, soffits, decks, roof, chimneys and drainage conditions. On the interior, they examine the condition of windows, doors, plumbing fixtures, electrical outlets and switches. They examine the heating and cooling systems. They also look at the attic and crawl space to ensure that they have adequate insulation and ventilation.

And what they don’t

Home inspectors are generalists and usually not qualified to assess things like pools, septic systems and trees and shrubs. If you want to have a termite inspection done, expect to hire a specialist in that area.

Accompany the inspector

A written report doesn’t give you the whole picture. Although it’s not required, if you go along on the inspection you’ll have a better indication of the issues associated with the home.

Questions to ask

It is essential that you trust the home inspector. Make sure to ask questions about the inspector’s background and qualifications, their training and what they’re looking for when they perform their inspection. Here’s a list of questions to ask your inspector (http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/insp/inspfaq) as suggested by HUD.

Finding a home inspector

If you’re in the market for a new home, ask your real estate agent for a list of trusted home inspectors that they use regularly. You can also ask friends and relatives for a referral. Make sure to do some research on the inspector; look for reviews online. In addition, make sure to ask to see a sample report. That way you’ll ensure that you’re comfortable with what the inspector reports and how they report it.

A home inspection is protection for the investment that you’re planning to make. Weighed against the potential cost of repairs and what you pay for your home, it is a wise decision to protect your investment.

15-year mortgage

For decades, when home buyers were discussing the terms of their mortgage, it was generally understood that it would be paid off in 30 years. But a couple of decades ago, buyers started hearing about the option of a 15-year mortgage.   The allure of the shorter term mortgage is obvious: Shorter terms means you pay less interest.

It isn’t the deal it once was

Using the mortgage calculator at Realtor.com, we can see just how much your payment will be. With a buying price of $200,000 and a 20% ($40,000) down payment, your payment will be $1,086 on a 15-year mortgage at 2.75% APR. On a 30-year mortgage for the same house, same down payment, with 3.5% APR, your payment will be $718. That’s a difference of $368.

The drop in interest rates isn’t what it used to be. In the 1980s, there was a discernible difference in interest rates. The monthly payment on a 15-year mortgage at 8.5% would be $1575, while the same house at 10.5% for a 30-year note would be $1,463. That’s a difference of $108.

Strain on the budget

Many home buyers find that coming up with the extra money month in and month out is prohibitive. Any change to your financial situation could make it more difficult. Having children, buying a new car, a bout of unemployment… anything could put a strain on your already tight budget.

Less flexibility

Paying over 50% more on your mortgage requires fiscal discipline, to be sure. It also means the difference between investing in retirement, taking vacations and spending less money on almost everything in your life.

Paying off your mortgage early

Many people are opting for the 30-year mortgage and taking steps to pay it off early. There are many options for homeowners who want to pay down their mortgage at an accelerated rate. Paying bi-weekly is one option. Simply paying more is another. As your salary rises, pay that much extra on your mortgage. You can also apply windfalls such as tax refunds and bonuses to your principal.

For more ideas about your mortgage options, talk to your REALTOR® and loan professional. They should have ideas to determine your best course of action.

Research the schools when moving

Whether you’re moving across town or across the country, if you have children, one of the biggest considerations when buying a home is the schools they will attend. It is important, but it doesn’t have to be a daunting task and there are resources available that you should look into before making a buying decision.

Use online resources

Fortunately, finding information about schools online is relatively easy. Most districts have a website, so that’s a good place to begin your search. The sites vary in terms of how comprehensive and helpful they are, but most will provide a list of district schools, contact information, schedules, after school programs. Check the individual school website for information about contacting PTO officers. One of the most important pages you’ll need to see is the one highlighting enrollment procedures, so you’ll know exactly what you need to get started.

For a more objective view of the schools in the area, websites such as GreatSchools.org, GlobalReportCard.org and NeighborhoodScout.com offer information about district standardized test scores as well as parent reviews.

Don’t forget social media. Many schools have Facebook and Twitter pages. Do a quick search there and do some looking around.

Coordinate your efforts

There are two common mistakes when trying to coordinate buying a home with choosing a school. The first is finding a school and getting their children enrolled only to discover there are no homes in the area, or none that they can afford. The other is finding their dream home and starting the process of buying it, then finding out there are no schools in the area.

Connect with other parents

The best source of school information is, of course, other parents, so it is beneficial to speak to them about the schools in the area. As stated before, there will be information available on the school’s website about PTO; reach out to them personally. The officers are usually the most involved and will be great sources of information about teachers, principals and administration.

Seek out local resources
Talk to your REALTOR®, who will usually have great information about schools. If they are not experts, they usually have a colleague who they can use as a resource. If you’re relocating for your job, send out an email blast to your future co-workers and ask them for information and recommendations about schools. Check local papers for stories about the schools on your list.

Contact the schools

Once you’ve narrowed your search to a few schools, contact each one directly. Talk to the principal or administrator and have a list of questions ready for them. Ask them to recommend several parents that you can talk to as well.

Have a backup plan in place

Whether you choose a public or private school, there is no guarantee that you’ll get in. Be sure to have a back-up plan in case the school you choose doesn’t work out. Enroll your child in the school that is your first choice, but make sure that you know if there are slots available at two or three other schools on your list, just in case things don’t work out.

Once you’ve settled on a school, make sure to check the website and contact them to ensure that you have all the paperwork and documentation necessary to enroll.

Coordinating choosing a school and finding a home is a necessity when making a move. Doing due diligence by researching the school and reaching out to local resources and other parents will help make the transition process for your child more smooth and eliminate worry for you.