How does the mortgage and escrow closing process work in California? How long does the real estate closing take, for home buyers? And what steps are involved in this process?
These are some of the most common questions home buyers have about real estate escrow and mortgage closing. Today, we will examine the various steps in this process so that you can better prepare for it.
Mortgage and Escrow Closing Process in California
In California, as in most states, the escrow closing process is typically the last step in the residential real estate transaction. This is when the home buyer and seller sign all of the documents relating to the sale, and when all funds are distributed accordingly.
For home buyers, the mortgage and escrow closing process in California involves a lot of paperwork that must be signed. The process is usually managed by an escrow company. These companies specialize in finalizing real estate deals and making sure that all paperwork has been submitted, and that funds have been distributed to the appropriate parties.
In California, escrow companies are sometimes referred to as “closing companies” as well. The two terms are used interchangeably and basically mean the same thing.
In its handbook on the subject, the California Department of Real Estate defined escrow as such:
“…escrow is the process whereby parties to the transfer or financing of real estate deposit documents, funds, or other things of value with a neutral and disinterested third party (the escrow agent), which are held in trust until a specific event or condition takes place according to specific, mutual written instructions from the parties. Escrow is essentially a clearinghouse for the receipt, exchange, and distribution of the items needed to transfer or finance real estate. When the event occurs or the condition is satisfied, a distribution or transfer takes place. When all of the elements necessary to consummate the real estate transaction have occurred, the escrow is “closed”.”
The process itself might vary, depending on where in California you live. For example, there are some differences in how the mortgage and escrow closing process is handled in the northern and southern parts of the state:
- In northern California, most real estate escrows are performed by title insurance companies.
- In southern California, on the other hand, there’s usually a separate escrow and title company involved with the process.
But that’s a broad generalization. In some cases, differences can arise from one real estate deal to the next — even within the same county or region. So be sure to ask your mortgage loan officer how it works in your area.
How COVID-19 Has Changed Things
The mortgage closing process in California has changed over the past few months. This is primarily due to the ongoing coronavirus pandemic in the United States.
These changes can be summed up in a single word. Digital.
The entire process can now be handled electronically / digitally, which reduces the need for in-person and face-to-face interactions. These changes allow real estate deals to move forward in the age of social distancing.
In fact, nearly all of the documents relating to the home buying and mortgage closing process in California can be reviewed, signed and distributed digitally. Real estate, mortgage and escrow companies have adapted successfully to the COVID-19 crisis. So, as a borrower, you can rest assure that deals are still being done.
Basic Steps in the Process
The individual steps in the real estate and escrow closing process in California can vary for a number of reasons. Local “customs,” the type of mortgage loan being used, and other variables can affect the process.
But it usually goes something like this:
- A title company will perform a “title search” for the home being purchased. They do this to ensure that the seller is the true owner, and that no liens or encumbrances exist on the property. Once a “clear title” designation has been made, the closing process moves forward.
- Next, a title insurance policy will be prepared. There are two kinds of title insurance in California — the owner’s and the lender’s. The owner’s policy protects the home buyer from fraud, forgeries, and liens relating to the property. It gives the buyer other protections as well, but they are beyond the scope of this article.
- The escrow agent (or “closing agent”) receives the finalized loan documents from the home buyer’s mortgage lender.
- Next, the buyer will sign all of the relevant closing documents, including the mortgage paperwork mentioned above. This can be done in person or digitally, as in the case of COVID-19.
- The home buyer / borrower will then pay all remaining closing costs, minus the down payment. In some cases, buyers will pay the remaining balance in advance to expedite the process.
- As one of the last steps in the California escrow closing process, a government official will record the “title deed” in the buyer’s name. This recording is what officially transfers property ownership from the seller to the buyer.
- Once the title has been recorded, the escrow agent will pay the seller and real estate professionals whatever proceeds they are due to receive.
- After all of that, the buyers will receive the keys to their new home.
It bears repeating: This is how the real estate escrow closing process in California usually works. These are the steps that take place in a typical closing scenario. But your process could vary from the steps shown above, for a number of reasons. Your mortgage loan officer and escrow officer can tell you what to expect, given the particulars of your transaction.
What the Escrow Officer Does
The escrow officer is one of the key “players” during the real estate closing process in California. This person might also be referred to as the escrow “agent” or “representative.” Regardless of the terminology, the role is the same.
In California, this person is typically responsible for the following:
- The escrow officer will prepare and finalize your closing statement. This document is basically an itemized accounting of the escrow. It shows all of the non-recurring and recurring closing costs, credits and debits, and prorations (when applicable).
- If the buyer or seller is due to receive funds at closing, the escrow officer will be responsible for disbursing those funds.
- The escrow officer is also responsible for disbursing the commissions for any real estate agents, real estate brokers, or mortgage brokers involved in the real estate transaction.
- The escrow officer will also disburse payments that are due to homeowner associations (HOAs), home insurance companies, termite companies, notaries, and other third-party service providers.
How to Keep Things on Track
The mortgage and escrow closing process in California involves a lot of players and moving parts. As a result, it requires a lot of coordination between the various parties. This includes the seller, buyer, the mortgage company, and the real estate agents. Those are the primary people involved.
With that being said, most of the work will be done between the mortgage company and escrow officer or agent. They are the ones who will prepare and finalize all of the loan documents and other paperwork needed to close the deal.
As a home buyer and borrower, you can help keep the process on track as well. The most important thing at this stage is to stay in touch with your loan officer and the escrow person who is managing your closing process.
Staying in touch and providing any requested documents are two of the proactive steps you can take to prevent unwanted delays in the closing process.
Remember: At this stage, everybody wants the same thing. They all want the deal to close, so the property can be transferred from seller to buyer. Once you reach the closing stage, all of the underwriting scrutiny is over with. The mortgage company has already determined that you’re a qualified borrower, and everyone is on the same page. Now, the goal is to keep the communication flowing until you reach the finish.
Average Time to Close in California
Another common question is: How long does the real estate closing process take in California? This can vary for a number of reasons.
During escrow, there’s a lot of paperwork flying around — digitally, in some cases. There are many documents that need to be produced, reviewed and signed. Because of this, there are quite a few things that can affect the timeline.
On average, the mortgage and escrow closing process in California can take anywhere from 30 to 45 days.
It can happen faster than that in some cases, especially when the loan officer and/or escrow manager are caught up and not suffering from a backlog of deals. It can also take longer than 30 to 45 days. It varies.
Our advice is to check with your mortgage lender up front to find out what kind of timeframe you can expect. Then, you can create a realistic timeline for your escrow and closing process, and write it into the purchase agreement.
How Home Buyer’s Pay Their Closing Costs
Some of the costs associated with a home purchase have to be paid at the time services are provided. This is true for the home appraisal and home inspection in most cases. You cannot “roll” those charges into your closing costs. They typically have to be paid when the services are performed.
For all other closing costs, the home buyer usually pays them via wire transfer or cashier’s check in the days leading up to the closing — or on the scheduled closing day.
In the past, the buyer, seller and their real estate agents would sit around a table to review and sign documents. These days, buyers and sellers can sign their documents individually (and often digitally) by working with the escrow company. The home buyer might drop off a check at the escrow company’s office, send it by mail, or do a wire transfer.
A few days before you are scheduled to close, your mortgage lender should provide you with a document called the “Closing Disclosure.” This is a follow-up document to one that you received early on in the mortgage process, when you first applied for a home loan. At that time, you should have received a document called a “Loan Estimate.”
As its name suggests, the first document provides an estimate of the mortgage-related closing costs. The second document, the Closing Disclosure, will have a finalized list of costs that must be paid. That’s the amount you will use for your cashier’s check or wire transfer.
Disclaimer: This article provides a basic overview of the mortgage and real estate escrow closing process in California. This process can vary from one home buyer to the next for a number of reasons. Portions of this article might not apply to your particular situation. Additionally, you might have to undergo additional steps that are not mentioned above. If you have questions about the process, you can refer them to your mortgage lender or escrow officer.