Here is How Your Impound Account Can Show a Shortage
Some home buyers don't have the option of deciding whether they want an impound account, that is to pay their taxes and insurance themselves. If you are putting down less than 20% to buy a home, the lender will generally require an impound or escrow account for those payments. This means the lender will collect 2 to 8 months of prorated payments from you and put that money into a separate interest-bearing account. The lender will then make the payments to the tax assessor and your insurance agent when the bills come due.
However, did you know that even if you're putting down 20% or more, some lenders will charge you a higher interest rate or higher fee if you refuse to set up an impound account? When there's not enough in your impound account to pay the taxes and insurance when the bills come due, however, you will have a shortage, and shortages are not uncommon . . . read more about Impound Accounts.
More Articles by Elizabeth Weintraub:
©Big Stock Photo
Technorati tag: impound account
Comments
Hello,
Your article states that a lender will charge you a higher interest rate for requesting to not have an impound (escrow) account. That statement is not fully correct. Mortgage Loans are priced on a sliding scale and the fee imposed for waiving an impound (escrow) account does not directly affect the rate. It effect the rebate (YSP or SRP) received by the banker or broker. Whether or not; that particular entity decides to pass that cost onto the borrower is up to that entity.
My loan rep at Vitek Mortgage disagrees. She says: “Most lenders will charge an additional .25 point cost if you do not have an impound account. Thus if we quoted a rate at zero points, there would still be a .25 point charge for not having the impound account. If a lender does not charge a separate fee for it and factors it in to the pricing of the loan, it can affect the rate. Typically, the different options would presented to the borrower so it can really vary. There are a few lenders who do not charge for not having an impound account, however, there are only a few who do not. You only have an option to not have an impound account if you are putting at least 10% down. FHA loans always require it. “