What does escrow really mean?
If you’re in the process of purchasing a home, you may have heard the term “escrow account”, also mentioned as “impound account”. An escrow account is a type of account that holds funds to be used for a specific purpose, such as paying property taxes or homeowners insurance. Here’s what you need to know about escrow accounts!
An escrow account is a type of account that holds funds to be used for a specific purpose. In the context of homeownership, an impound account is typically used to hold funds for property taxes and homeowners’ insurance. When you make your monthly mortgage payment, a portion of that payment is deposited into the escrow account, and the funds are then used to pay property taxes and homeowners insurance when they are due.
When you set up an escrow account, your lender will estimate the amount of property taxes and homeowners’ insurance that you will owe for the year and divide that amount by 12. This will give you the amount of your monthly escrow payment. Each month, when you make your mortgage payment, a portion of that payment is deposited into the escrow account. When property taxes or homeowners’ insurance become due, your lender will use the funds in the impound account to pay those bills on your behalf.
It can help you budget! When you have an impound account, you’ll know exactly how much you need to set aside each month for property taxes and homeowners’ insurance. This can help you budget more effectively and avoid any surprises when those bills become due. It ensures bills are paid on time! When having an impound account, your lender is responsible for making sure your property taxes and homeowners’ insurance is paid on time. This can help you avoid any penalties or late fees that may be assessed if those bills are not paid on time. It can simplify the mortgage process! An impound account can simplify the mortgage process by combining your mortgage payment, property taxes, and homeowners’ insurance into one monthly payment.
An escrow account can be a useful tool for managing your finances and ensuring that your property taxes and homeowners’ insurance are paid on time. If you’re considering an impound account, be sure to talk to your lender and ask any questions you may have about the process.
“Paying Homeowners Insurance through Escrow | American Family Insurance.” Www.amfam.com, www.amfam.com/resources/articles/at-home/. Accessed 18 Apr. 2023.
Investopedia. (2022). Escrow Account. Retrieved from https://www.investopedia.com/terms/e/
Minnesota Homebuyer’s connection (2022) Minnesota Homebuyer’s Connection. Available at: https://mnhomebuyersconnection.com/ (Accessed: March 24, 2023).
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