(Portions of this blog post were updated since it was originally published in February 2019.)
This blog post is aimed at buyers who ask questions about closing costs, pooling funds for closing and ensuring payment instructions from escrow are clear. This is a primer on what you need to think about, when you must act and who you need to communicate with in the final days before closing the deal.
As we noted in an earlier post, a buyer’s escrow agent will prepare the closing disclosure (also known as the settlement statement) before signing day. This statement, which must be delivered to buyers at least three days before closing, will note the amount of funds required by buyers to complete the transaction.
The main message from this blog post is simple: Don’t be caught short. Plan for the necessary funds to be available and liquid at least a business day or two before signing documents.
The law requires escrow companies receive certified funds, which only consist of a cashier’s check or bank wire transfer. No, buyers cannot come to closing with a personal check, foreign monies, cash, crypto-currency or their son’s piggy bank – sorry.
In addition, all sources of funds must be itemized and the information about those funds shared in advance with your lender and real estate professional. Any change of sources or amounts must be shared as well. It’s all about transparency and verification. (A seller can ask for verification of funds when they are not in the bank or with the lender.)
If a buyer is pulling money from a foreign source or selling stocks or bonds, be sure to complete those steps at least 10 days before closing as some banks will put a hold on the funds until they clear, risking a delay in closing. [Some countries also limit the amount of money that can be sent overseas per transaction.] If young buyers are receiving gift money from family, be sure they share a letter of commitment with lenders and confirm in advance whether the family member making the gift needs to first see the property.
It’s also best if the down payment and closing costs are transferred into one account. This bank account must be disclosed to your lender as a way for the loan officer to track all money movements.
Don’t worry about remembering each step here. Your lender and escrow representative will keep you informed along the way.
Your escrow agent would have delivered payment-transfer instructions to you by now, and if you are making a wire transfer you should provide to your banker a phone number for the escrow company and the name of your escrow agent in case there are questions.
When should you visit the bank to complete your role in the money transfer? It’s preferred you do this 1-2 business days before signing. (I suggest two days is better than one, just in case something goes sideways.) Signing day is generally a day before escrow consummates the deal and disperses funds.
In the unlikely event that you don’t yet know the exact amount needed at closing, have more than enough money transferred. You’ll get a refund later.
If you decide to make a wire transfer, escrow will likely acknowledge receipt of funds and you can be sure the escrow agent will contact both you and the bank if there’s an issue.
In Washington state, buyers are told to bring the cashier’s check – considered Federal Reserve-insured guaranteed funds – to the escrow company offices when signing (or sooner) or complete the bank wire transfer at least a day before signing. Also get a receipt when exchanging funds as proof. [Check with your Washington state escrow company; some limit the amount of a cashier’s check – typically around $50,000 – and require 24 hours for the funds to clear, and most do not accept an “official check” from the bank.]
Naturally, it would be so much better to complete the money transfer with plenty of time to spare – just to be safe. To avoid any delay in the wiring process, we tell buyers to avoid sending funds on the 15th and 30th of the month and on Fridays – the busiest days for banks and Federal Reserve.
WARNING: Do not independently change your wire-transfer instructions based on a random email, text message or phone call from an individual masquerading as an escrow, mortgage, real estate or bank representative. There are fraudsters doing an amazing job deceiving the public and successfully stealing buyers’ hard-earned money. Do not respond to any emails or calls seeking to change wire instructions – no matter how accurate the information appears. They are not legitimate communications.
Contact your escrow agent by referring to the previously received/authentic documents or your real estate professional by phone or in person to reconfirm the wire instructions.