What Not to Do During Escrow for a Smooth Closing

Escrow is a financial arrangement where a neutral third party holds funds or assets on behalf of two parties involved in a transaction until specific conditions are met. This process is common and important in real estate transactions, providing a secure framework for completing a significant financial undertaking. The escrow agent, typically an escrow or title company, acts as an impartial facilitator, ensuring all contractual obligations are fulfilled. This safeguards both parties’ interests by not releasing funds or transferring ownership until all agreed-upon terms are satisfied. The escrow period requires careful attention from all involved parties to ensure a smooth closing.

Maintaining Financial Stability

Buyers must maintain financial stability during escrow, as lenders monitor financial profiles until closing. Applying for new credit, such as credit cards or personal loans, or co-signing on another loan, generates hard inquiries. These actions can lower a credit score and signal increased debt, potentially altering the initial loan approval terms or even leading to a denial.

Avoid making large purchases, even if paid in cash. Financing items like a new car or appliances can increase a buyer’s debt-to-income (DTI) ratio. Lenders re-verify financial information, including credit and DTI, before closing, and unfavorable changes can cause delays or rejections. Large cash purchases can also deplete cash reserves, which lenders often require buyers to maintain.

Changing employment status or income sources during escrow can also raise lender concerns. Lenders verify employment history and stability, often requiring two years of consistent employment. A job change, especially one involving a different industry, a pay decrease, or a probationary period, can signal instability and lead to a re-evaluation of loan eligibility. Inform the lender immediately if a job change is unavoidable, providing new employment contracts or offer letters.

Avoid large, unexplained bank deposits or withdrawals. Lenders scrutinize bank statements to confirm the source of funds for down payments and closing costs. Unusual large transactions without clear documentation may require extensive explanations and could delay the closing process. Maintaining transparent and well-documented financial records helps ensure a smoother closing.

Avoid closing existing credit accounts, even those with zero balances. Closing old credit cards can negatively impact a credit score by reducing the overall available credit, thereby increasing the credit utilization ratio, and shortening the average age of credit history. A lower credit score can lead to less favorable loan terms or jeopardize mortgage approval.

Managing Property Conditions

Sellers should not make alterations or remove fixtures once the purchase agreement is in place. The property must remain in the agreed-upon condition as inspected and appraised. Changes like removing built-in appliances or light fixtures without agreement can lead to disputes and delays, potentially requiring sellers to replace items or offer concessions.

Buyers should not neglect the inspection report or final walk-through. The inspection report details the property’s condition and defects, allowing negotiation on repairs or credits. The final walk-through confirms the property is in the expected condition and any agreed-upon repairs are complete. Overlooking these steps means accepting the property “as is.”

Do not assume minor issues discovered during inspections will be resolved automatically. All agreements for repairs, credits, or concessions must be explicitly documented in writing and signed by both parties. Verbal agreements are not enforceable and can lead to misunderstandings. Written addendums to the purchase agreement are required.

Avoid prematurely changing utilities or canceling homeowners insurance before the official closing date. The seller is responsible for utilities until closing, with the buyer assuming responsibility afterward. Disconnecting services too early can cause interruptions. Buyers should arrange for utilities to be transferred into their name effective on the closing date. Homeowners insurance must be in effect, as lenders require proof of coverage at closing.

Adhering to Communication Guidelines

Avoid communicating directly with the other party without involving real estate agents. Agents serve as intermediaries, facilitating clear, documented communication and negotiation. Bypassing agents can lead to emotional exchanges, accidental sharing of sensitive information, or misinterpretations, potentially jeopardizing the transaction.

Avoid emotional or confrontational communication, even when frustrated. Maintaining a professional and respectful tone is vital for productive negotiations and problem-solving. Address issues like appraisal discrepancies or inspection concerns through proper channels, focusing on finding solutions. Effective communication prevents conflicts from escalating and keeps the process moving.

Do not ignore requests for information or signatures from agents or the escrow officer. Escrow involves strict timelines, and one party’s delay can hold up the entire process. Prompt responses to requests for documents, clarifications, or approvals maintain momentum and meet deadlines. Timely engagement ensures all necessary steps are completed efficiently.

Withholding relevant information can create problems. Both buyers and sellers must disclose known issues about the property or their financial situation. Failure to disclose facts can lead to legal disputes, penalties, or transaction cancellation. Transparency throughout escrow builds trust and minimizes the risk of last-minute surprises that could delay closing.

Fulfilling Document Requirements

Delaying the signing or submission of required documents frequently causes escrow delays. Real estate transactions operate on tight schedules with deadlines for inspections, appraisals, loan approvals, and document submissions. Each delay can cascade, pushing back the closing date and potentially incurring costs or contract cancellation.

Do not sign documents without careful review. Real estate contracts, loan agreements, and disclosure forms contain terms, conditions, and legal obligations. Understanding these documents before signing protects financial and legal interests. Rushing through paperwork or signing without comprehension can lead to unfavorable terms or unexpected liabilities.

Providing incomplete or inaccurate information on forms is another error to avoid. Mortgage applications and other official documents require accurate details regarding income, assets, debts, and property information. Submitting incorrect data, intentionally or unintentionally, can be considered mortgage fraud, carrying penalties or loan denial. Lenders and escrow agents verify this information, and discrepancies will cause delays.

Losing track of paperwork can create delays. Maintaining an organized record of all transaction documents, including the purchase agreement, loan estimates, disclosures, and communication records, is recommended. Easy access to these documents ensures any questions or requirements can be addressed promptly, contributing to a smoother closing.