Impounds vs. No Impounds; Sometimes No Choice

We often get asked for advice in regard to taking an impound account or not. An impound (or escrow) account is an account held by a lender or a servicer that accumulates property tax and/or hazard insurance payments. The lender/servicer then uses those funds to make the semi-annual or annual property tax and insurance payments on behalf of the borrower.

Many of our conservative borrowers like the security, safety and forced savings that an impound account imparts; they like not having to worry about coming up with the necessary funds to make the large property tax and insurance payments when they come due.

Despite this, we often recommend that borrowers do not set up an impound account. This is b/c impound accounts often require substantially more cash at close of escrow (that borrowers often do not have). And it is also b/c lenders/servicers pay no interest against the balances.

Sometimes, however, borrowers have no choice in the matter. FHA loans always require impounds, and financing with less than 10.1% down usually requires impounds.

There is one more little known fact that most loan officers don’t disclose: lenders often get paid a little more when they lock a loan with impounds.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646