Escrow or Impound Accounts are usually required if a buyer puts less than 20% down; impounds are always required with FHA loans irrespective of the down payment size. An Impound Account is set up to allow the payment of Property Taxes and/or Hazard Insurance on a pro-rata monthly basis instead of on a semi-annual or annual basis.
For example, if a buyer with an impound account has property taxes of $1,200 per year, he would pay an extra $100 per month to the lender instead of paying two semi-annual $600 property tax payments.
Most of our readers well-understand how these accounts work. There several facts about Impounds most do not know, however.
(1) Many lenders offer improved pricing to buyers who take an impound account, no matter what the LTV is. Buyers can save as much as 1/4 of a point in fees by taking Impounds.
(2) Escrow will have to collect a 8 months in taxes from buyers closing in August. This is important b/c buyers are so often confused by this. But, if a purchase closes in August, the first mortgage payment will not be due until October 1st. The buyer’s first property tax payment will be due on November 1st. Hence, escrow needs to collect 8 months of taxes to make sure there is enough money in the account for the lender to pay the property tax bills that come due on Nov. 1st and Feb. 1st.
(3) MI Companies require impounds, but usually only if the LTV is above 89.9%. Buyers with MI can waive impounds if they keep their LTV at 89.9% or lower.
Call Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646