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How an Impound Escrow Account Works
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An escrow account is like a piggybank for your property taxes and homeowner’s insurance. Here's how it works:
Why It's Required
If your down payment is less than 10%, lenders require an escrow account to make sure your property taxes and insurance are paid on time.
How It Works
The lender splits your yearly property taxes and homeowner’s insurance into 12 monthly payments.
These amounts are added to your monthly mortgage payment, which is called an escrow payment.
Each month, when you pay your mortgage, the escrow part goes into your escrow account.
What It Does
The lender uses the money in the escrow account to pay your property taxes to the county and your homeowner’s insurance to the insurance company when they are due.
This ensures your taxes and insurance are always paid on time, protecting both you and the lender.
Fluctuating Payments
Your property taxes may change each year based on county assessments, which means your monthly escrow payment might also change.
At Closing
When you buy a home, you need to put some money into the escrow account at closing to get it started.
This amount depends on the lender’s requirements, but sometimes lender credits can help cover these initial costs.
In summary, an escrow account takes care of your property taxes and insurance for you, so it's one less thing to worry about.
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