Are you ready to purchase a home and want to know the differences between a title company vs. escrow company?
Well, we broke it down for you nice and easy.
Here you’ll learn what they are, the benefits between title and escrow services, and more.
Enjoy the helpful read!
What Is A Title Company?
A title company is a business that specializes in the preparation of documents for real estate and the issuance of title insurance. Title companies and the title agent are usually involved in the purchase or sale of the property. Therefore, they play an essential role in ensuring that the transaction is conducted smoothly and legally and there are no title issues.
What Are Some Common Title Company Services?
Title companies typically provide the following services:
- Prepare and issue title insurance policies
- Perform a property survey
- Conduct a title search through public records to determine the legal ownership of the property and any outstanding liens, unpaid taxes, title defects, or encumbrances
- Prepare escrow instructions for new owners
- Disburse funds from the escrow account
- Record the deed and mortgage with the appropriate government agency
What Is The Role Of The Title Company?
A title company’s role is to protect the buyer and lender from potential losses that could arise from property title problems. For example, if it is discovered that the seller does not own the home. Or, if there are any pending liens against the property that the buyer was unaware of, the title company would be responsible for resolving these issues. As a result, more costs could occur, impacting your ability to save for the future, or even worse, not purchase the property.
What Is Title Insurance?
Title insurance is a type of insurance that protects the lender and/or buyer from losses that could occur as a result of defects in the title to the property. The title company issues a title insurance policy to the buyer and/or lender at closing time. If any problems with the title are discovered later on, the title company will reimburse the buyer and/or lender for any financial losses they may incur.
Most lenders require that the buyer purchase an owner’s title insurance policy to get a loan. This is because the lender wants to ensure they will not lose their investment if there are any property title problems. The cost of the title insurance policy is typically paid by the buyer at closing.
Suppose you are a home buyer buying a new home or a soon-to-be previous owner selling a property. In that case, it is crucial to work with a reputable title company to ensure that the transaction goes smoothly, that you will actually own the title, and that you are protected from any potential losses.
How Much Does a Title Company Cost?
The cost of title insurance premiums can vary depending on the services that you require. For example, if you need a complete title search, the cost and legal fees will be higher than if you just need a simple title insurance policy. Additionally, the size and location of the property can also affect the cost. You can expect to pay between $500 and $1,500 for title company services. And if you’re in a high cost of living area, it could be more.
What Is An Escrow Company?
An escrow company is a third-party organization that manages the transfer of funds between two parties during a transaction. This type of company is often used in real estate transactions to ensure that the buyer’s earnest money deposit is protected and properly disbursed to the seller. An escrow company acts as a neutral middleman to facilitate a transaction.
What Are Some Common Escrow Company Services?
There are many escrow companies, each with specific procedures and protocols. However, all escrow companies typically provide the following escrow services:
- Reviewing and approving the transaction documents for accuracy
- Collecting funds from the buyer
- Holding those funds in a secure account
- Disbursing the funds to the seller once all conditions of the sale have been met
Using an escrow agency is not required in all transactions. However, many buyers and sellers choose to use one to minimize risk and protect their interests.
If you are considering using an escrow company for your next transaction, be sure to research and choose a reputable organization with experience in your particular type of transaction.
How Much Does An Escrow Company Cost?
An escrow company typically charges a percentage of the home’s total purchase price as their fee. Depending on the company and its services, this fee can range from 0.5% to 1% of the total purchase price. For example, if you followed all of your frugal living tips and now can buy a $300,000 home, you can expect to pay between $2,000 and $3,000 in escrow fees. Some companies may also charge a flat fee, which is typically around $250. So, when you’re considering an escrow company, be sure to ask about their fees and compare them to other companies before making your decision.
FAQ
How much is title insurance?
The cost of title insurance would depend on the services you require, the size and location of the property, if the previous owner had any outstanding mortgages, and other factors. Generally, you can expect to pay between $500 and $1,500 for this legal document. Regardless, it’s a great idea to purchase title insurance to ensure you have a clear title and clean title.
Is escrow the same as closing?
No. Escrow is the process of setting aside funds to complete a transaction, while the closing is the actual transfer of ownership.
What should you not do during escrow?
There are a few things you should avoid during escrow, such as:
- Taking on new debt
- Making any major purchases
- Changing jobs
- Moving
All these things can impact closing costs, ability to obtain a loan, complete the transaction, and buy a new house.
Why do you need an escrow agent?
An escrow agent is a neutral third party who handles the exchange of money and documents during a real estate transaction. It’s a good idea to use one because they ensure that all parties involved fulfill their obligations and help the financial transactions during the real estate closing go smoothly.
How long can funds be held in escrow during a real estate transaction?
The length of time that funds can be held in escrow during a real estate transaction varies depending on the state in which the property is located.
Who is responsible for escrow funds held by a firm?
The firm holding the escrow funds and the escrow officer is responsible for them. This includes ensuring that the funds during the escrow process are held safely and securely. And that they are only used for the purpose for which they were intended.
Summary
Now that you have the necessary information and know the common differences between a title company and an escrow company, it’s time to find an excellent provider for your upcoming home purchase. A good title company will help ensure the process goes as smoothly as possible, while an escrow company can help manage the financial side of things. Use our tips to help you choose the best option for your needs, and then go out and have some successful home buying!
Hello! I'm Charles. 1st gen millionaire, real estate investor, health enthusiast, and military veteran. In the last 17 years, I have managed billions of dollars of resources for the Department of Defense. Created financial management plans that enabled fellow service members to get out of thousands of dollars in debt and tailored wellness plans that helped people reverse and eliminate high-blood pressure, pre-diabetes, and obesity. Learn more about me here.