As one of the eight escrow states in America, Arizona has a slightly different process for buying homes than elsewhere: it relies on an escrow process, where a neutral third party holds funds, such as cash or assets until the transaction is complete.
Some of these funds may be held even after the escrow account is closed and will then be automatically applied to things like insurance or taxes. Escrow may be managed by a suitable company, or a lawyer may control it. If a lawyer controls it, the process is called a “settlement,” but the steps are fundamentally the same.
In Arizona, escrow is a vital component of the entire home purchasing process, and it determines the timeline of the sale. Today, we’ll explain the escrow process so that you feel more confident when you connect with one of our mortgage officers to search for your dream home.
Is Escrow Required In Arizona?
Yes, escrow is required in Arizona. Instead of a real estate agent overseeing real estate transactions, those seeking to purchase homes in Arizona will work with an escrow agent – also known as an escrow officer – who mediates between buyers and sellers once the purchase agreement has been signed.
The escrow company will hold the buyer’s earnest money or good faith deposit and some other loan funds from a lender, such as a mortgage payment, until the closing process is finished.
How Does Escrow Work In Arizona?
Once you sign the purchase contract, the process starts to speed up, and there are relatively tight deadlines for both the buyer and seller. While every title and escrow company is different, you can generally expect the Arizona escrow process, from start to finish, to take about 40 days.
As such, you must be prepared ahead of time for everything you must complete so that you can avoid missing deadlines and potentially losing out on your money.
The Consumer Finance Protection Bureau has an excellent mortgage closing checklist that will help you ensure you have everything necessary to complete the transaction effectively and on time.
Opening the Escrow Account
When you’ve signed the purchase agreement, your realtor will contact a title and escrow company, who will review the contract and open an escrow account to hold your good faith deposit.
Once the account’s ready, you’ll send your earnest money via wire transfer and the escrow fees necessary to open the account. These are usually about $2 for every $1000 of the purchase price, though the escrow company may also want a small fee of $250.
Submitting Documents
The escrow agent will now request documents from all parties involved. Everyone will need to verify their identity, the buyer will provide loan documents, and the seller will show the title documents.
In addition, the seller will need to provide the Seller Property Disclosure Statement that verifies the current shape of the home within three days.
Two days after that – so five days after the escrow process begins – they will need to submit the insurance claims history of the home. For example, if there’s been water damage, you need to know about this so you can share it with your home inspector.
Inspection Period
The escrow agent takes all of the information provided and performs a title check with the original title company to ensure that the seller has the authority to sell the home; if they need additional information about the title, they will contact the seller.
During the inspection period, which lasts ten days, the escrow agent will also identify any other fees or restrictions that the buyer needs to know about. For example, if a Homeowner’s Association controls the property, they’ll share this with the buyer.
Buyer’s Inspection Notice Seller Response
While the escrow agent is reviewing the title, the buyer has some work to do: they need to contact a home inspection company and complete the Buyer’s Inspection Notice Seller Response (BINSR) document by Day 10. This is also the last day to decide if they’re no longer interested in the property and get their escrow money back.
Once the BINSR has been sent over, the seller has five days to review it and respond, either agreeing to fix the problems listed or refusing. The buyer then also has five days to approve. By Day 20, everyone should be agreed, and the sale can proceed.
Seller Signs Contract and Sends Documents
On Day 20, the escrow agent will ensure the title is clear; the contract is now finalized and ready to be signed. The seller will plan for any repairs they agreed to make from the BINSR, and they’ll sign the contract and any other documents that will be processed now.
Buyer Provides Documents to Escrow; Seller Must Complete Repairs
If the buyer is paying for their home with a loan, they need to provide all the loan documents to the lender by Day 37, who will then send these over to the escrow agent.
If everything looks good, the escrow officer will prepare the Closing Disclosure, which is a document that lists all the costs associated with the loan. This includes the earnest deposit, purchase price, down payment, escrow fees, loan terms and interest rates, real estate commissions, and closing costs, such as the fees paid to the title insurer for owner’s insurance and lender’s insurance policies. Be sure to read this disclosure carefully and ask questions if you’re not sure: our loan officers are happy to assist.
At this time, the seller also needs to finish all the repairs on the property that they promised to complete in accordance with the BINSR.
Lender Verifies and Signs Loan
The escrow agent will send the Closing Disclosure over to the lender, who will approve it. With that, they send the funds over to the escrow officer, which will be distributed in a few days.
Deed Signed, Escrow Closed
Finally, the escrow agent will finalize closing escrow. The escrow officer will prepare a new deed that declares the buyer is now the legal owner of the property, which will be sent over to the county’s records office to record the transaction.
Any extra money the escrow company holds will be put toward the mortgage or taxes of the property, and the buyer will receive the keys, signaling that the property is now theirs.
Real estate transactions can be confusing, but we’re here to demystify the process and help you find a lender that suits your needs. You can always approach us with any questions you may have about an Arizona real estate transaction.
From finding a great lender, determining your mortgage payments, and walking you through the sale, we’re a full-service mortgage broker helping you purchase the home of your dreams.
Buying A Home In Arizona?
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Contact us today to get a free, no-obligation quote without pulling your credit score, or use our free mortgage calculators to see how much home you can afford in Arizona. You can also use our convenient online preapproval process to get ready to buy your home.
