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If you make a minimum down payment, you may be required
to deposit funds into an impound account. Funds in this account
are your funds, and the lender uses them to make the payments
on your homeowner’s insurance, property taxes, and
mortgage insurance (whichever is applicable). Each month,
in addition to your mortgage payment, you provide additional
funds which are deposited into your impound account.
The lender’s goal is to always have sufficient funds
to pay your bills as they come due. Sometimes impound accounts
are not required, but borrowers request one voluntarily.
A few lenders even offer to reduce your loan origination
fee if you obtain an impound account. However, if you are
disciplined about paying your bills and an impound account
is not required, you can probably earn a better rate of return
by putting the funds into a savings account. Impound accounts
are sometimes referred to as escrow accounts.
Homeowners Insurance Impounds – your lender will divide
your annual premium by twelve to come up with an estimated
monthly amount for you to pay into your impound account.
Since a lender is allowed to keep two months of reserves
in your account, you will have to deposit two months into
the impound account to start it up.
Property Tax Impounds – How much you will have to
deposit towards taxes to start up your impound account varies
according to when you close your real estate transaction.
For example, you may close in November and property taxes
are due in December. Your deposit would be higher than for
someone closing in May.
Mortgage Insurance Impounds – When required, most
lenders allow this to simply be paid monthly. However, you
may be required to put two months worth of mortgage insurance
as an initial deposit into your impound account.
 Non-recurring
Closing Costs not Associated with the Lender
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copyright 2000 by Terry Light and
RealEstate ABC
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