How To Wire Funds For Escrow
Buying a home can be one of the most rewarding, yet intimidating experiences life has to offer. During this process, you may find yourself having to transfer large sums of money between parties. Gone are the days of written cheques and bags full of money. As with many things that have been optimized with technology, so has the process of transferring money
For any of you who are not sure what escrow is, here's a quick refresh. When you're looking to buy a home or property, you'll probably hear the phrase "payment in escrow." According to Investopedia, an escrow account is a holding account for funds or other assets that will not be released back to the owner until specific criteria are satisfied. The account is kept by a neutral third party, who releases it when the contractual requirements are met or when an otherwise acceptable instruction is received.
Now that we are all caught up on that, let's see what wire transfers are and how they can be used to transfer funds for escrow.
What is a wire transfer?
According to Bank of America, a wire transfer is a quick approach to transferring funds electronically within financial institutions such as banks or credit unions. Wire transfers are also popularly referred to as bank transfers, credit transfers, or an EFT (electronic funds transfer). Organizations such as S.W.I.F.T or Fedwire Network are typically used to facilitate wire transfers. They allow for both international and domestic transfers, making it a popular method of transferring money between parties. It's also considered a safe and secure method, as both parties involved need to be account holders at their relevant financial institution, which adds a layer of protection and authenticity (via Forbes).
During the home buying process, there are two instances in which large sums of money may need to be transferred– the EMD (Earnest Money Deposit) and the Cash to Close payment, according to Realtor.com. An EMD is a sum of money, typically 3% to 5% of the total purchase price, that is made to the seller as a sign of good faith that you are serious about buying the home and will not waver on your decision. The Cash to Close payment is a much larger sum of money that you pay on the day of closing the deal to finalize the purchase of your home. It includes costs such as closing costs, the down payment, and credits.
How do you make a wire transfer?
Making a wire transfer may seem like a complicated process but it's quite simple. CertifID breaks down the process as follows:
The first step is to gather the relevant information from the recipient. In the case of buying a home, your title or escrow company will provide you with specific wiring instructions. Next, make sure you specify the exact sum of money that needs to be sent. You must also make sure you have the details of the account the transfer is made from. CertifID also advises that you confirm all of these details with your bank over the phone, or via your bank's banking app.
With all of the above in order, you are now ready to initiate the wire transfer. In most cases, you should be able to use your bank's online banking portal to make the transfer, unless it's a large sum of money. Heads up: They may also charge a fee for wiring money. Afterward, you will be given a receipt of the wire transfer with all of the relevant information. Keep it in your records, as it may come in handy as proof of making the transfer. Your transfer will first move from your bank or financial institution to your receipts for money handling before being transferred directly to their account.