I’m often asked what an impound or escrow account is and why some Borrowers are required to have one and others are not. So, here’s the skinny!
What we as Lenders refer to as either an impound account or an escrow account, is basically a non-interest-bearing savings account that you are putting 1/12th of your property taxes and 1/12th of your homeowner’s insurance into monthly as part of your mortgage payment. By making this small monthly deposit, you are ensured that when the annual homeowners insurance premium is due or the semi-annual property taxes are due, there are adequate funds set aside to cover those large expenses.
For many, it would put a strain on their budget or not be within their budget at all, to simply write a check for the total of their property taxes and homeowner’s insurance. However, paying them monthly within their mortgage payment at a much lower amount is doable and they never have to think about setting those funds aside to be ready to pay them later.
If you are able to put at least 20% down on your purchase, it is assumed that you have the ability and discipline to save and the option is yours as to whether you wish to be responsible for making the annual insurance payment and the semi-annual property tax payment vs. including them in your payment.
If you are paying mortgage insurance, you will see the collection of and disbursal of your mortgage insurance through this same account as well.
Questions, give me a call at 360-459-1200!