What are Impound Accounts & Why Do I Need to Have Them in Order to Close My Loan? FAQ - #6

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Mortgage and Lending with Los Angeles & Ventura Counties in CA

In my continuing series of answering some of the most frequently asked questions that I get from clients and prospects, in Part 6, I want to discuss what impound accounts are and why some borrowers may or may not need to have them in order to close their loan.  I will also discuss why some borrowers may want to have them even if they don't have to.

An impounds account (aka escrow acct) is simply an account that lenders use to pay a homeowners property taxes and insurance (mortgage & hazard).  At the close of escrow and every month thereafter, a lender will collect funds that make up a portion of the annual property taxes and insurance that is needed for the homeowner to own their home.  These funds are kept by the lender and are used to pay the homeowners property taxes (paid bi-annually), hazard insurance (paid annually) and the monthly mortgage insurance. 

Some conventional loan products may require an impound account in order to fund the loan depending on the loan-to-value of the loan amount.  Furthermore, some may also charge extra to those borrowers who choose to waive an impound account.  Government insured loans like FHA and VA will also require impound accounts regardless of what the ltv is.  With some loan programs, once your loan balance reaches a certain ltv, you can request to have your impound account canceled.

At the close of escrow (COE), your lender will require that at least 12 months of hazard insurance be paid for or collected before funding the loan.  Your lender will also collect at least two months of mortgage insurance and property taxes.  In CA, lenders are required to keep a borrowers impounds in an interest-bearing account and the interest earned on the account belongs to the borrower, not the lender.

One of the benefits of having an impound account is that you can budget your taxes and insurance over a period of time, which is something I have always recommended to my first time buyers.  First timers are not in the habit of paying taxes and insurance so having their lender help them budget for them is a good thing.  For my more mature and seasoned home buyers, they may not need any supervision in making sure their taxes and insurance are paid, they can set aside their own funds in their own interest bearing account and pay their own taxes and insurance when they're due.

One of the first things that many homeowners get confused about is when their monthly bill increases and they automatically assume that it's their loan payment that has gone up.  If you have a fixed rate mortgage (FRM), it's not the loan payment that went up, it's your impound account amount that went up.

Here in CA, when a homebuyer closes escrow, their lender will estimate the property taxes based on 1.25% of the sales price and depending on the county, there may be some additional taxes.  For example, here in Ventura county, a portion of our property taxes goes toward the unified school board and community college board but also to water board as well.

I will often have clients ask me why they received a supplemental tax bill after they close escrow.  This is because your home was reassessed at a higher value than what the previous owners were assessed at.  However, if your home gets assessed at a lower value than what the previous owners were assessed at, you would not receive a supplemental bill. 

Furthermore, for some low income homebuyers who purchase their home through a county or city bond program (i.e. down payment assistance (dpa) program), they become eligible for a special discounted property tax rate that is specifically for affordable housing properties.  Instead of the standard tax rate of 1.25% of the sales price, these homeowners are assessed at only 1% of the affordable sales price (sale price - dpa).  You will need to check with your county tax board to see if you are eligible for this program.  For example, Ventura county participates in this program but Los Angeles county doesn't so it does depend on the county.

Ventura county is considered a high cost county and as such many of those who work here in Ventura county can not afford to live here therefore, many of them are commuting quite a way to just work.  Now, with the various affordable homeownership programs, the dream of homeownership becomes a reality for many of Ventura county's employees and residents who would never be able to own a home any other way.

Buying a home is one of the most important decisions someone can make, which is why it's important to get as much information as possible before starting your search.  Furthermore, it's absolutely vital that buyers work with a seasoned MLO and lender that that will work with them in helping them to decide what is best for them and their mortgage needs.   

That's what I'm here for and I would love to be able to assist you in your search for an affordable home loan.  If you have any questions and/or concerns, please feel free to contact me, Donne Knudsen at 805.2069123 or donne4loans@earthlink.net.

 

What Kind of First Time Buyer Programs are Available in Los Angeles & Ventura Counties? FAQ - #1

What kind of property can I buy? FAQ - #2

What Kind of Paperwork Do You Need to Pre-Approve Me? FAQ - #3

Why Do I Have to Get Pre-Approved with Other Lenders I Don't Want to Use Before I Can Make an Offer on a Property? FAQ - #4

What Kinds of Things Can Go Wrong in the Loan Process? FAQ - #5

Can You Help Me Get My Kid Get Out of My House? FAQ - #7 

I'm Supposed to be Closing Next Week Can You Help Me? FAQ - #8 

If I Buy a Duplex, Can I Apply the Tenants Rent Towards My Mortgage? FAQ #9

What Happens if My Appraisal Comes in Low? - FAQ #10

What is a HomePath Property and How Can I Buy One? - FAQ #11

Can I Still Get a Loan if I Don’t Have Perfect Credit? – FAQ #12

Are There Still Loan Programs Where I Don't Have to Put Anything Down? - FAQ #13

 

Photos courtesy of:  jpersons vctaxassessor

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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 Donne Knudsen

Realtor® - CalState Realty Services

DRE#: 01364050 / NMLS#: 249822 

 

805.2069123

 

E-mail   My Blog  

Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance

Los Angeles County  --  Ventura County

© 2010 - All Rights Reserved

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Ambassador
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Celeste "SALLY" Cheeseman
Century 21 Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE

You've got some wonderful information here!

Jan 25, 2011 01:46 PM #1
Rainmaker
549,943
Cynthia Larsen
Safe Haven Realty - Cotati, CA
Independent Broker Serving Sonoma County, CA

Awesome post, Donne!! VERY good idea to mention supplemental property taxes as well. I'm keeping this one bookmarked for my buyers!

Jan 25, 2011 02:16 PM #2
Rainmaker
1,281,099
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Donne good post with a good explanation for people getting a loan.  I get asked about these things all the time.

Jan 25, 2011 02:56 PM #3
Rainmaker
251,177
Ellie Penaranda
239.776.5077 Downing-Frye Realty - Naples, FL
Naples Florida Real Estate - Waterfront & Beach Co

Donne, you provided some great detailed information here for first time buyers and otherwise.  I've always liked monthly payments on anything I do, it is easier to keep the budget in check.

Jan 25, 2011 08:18 PM #4
Rainmaker
150,288
Eric Anderson
Prudential PenFed Realty (Fayetteville) - Fayetteville, NC
Fort Bragg Military Relocation Services, Fayetteville, NC Realtor

Donne, great post.  I must say one of the most detailed post I've seen.  

Jan 25, 2011 11:52 PM #5
Rainmaker
224,835
Jim Gilbert
Samson Properties - Manassas, VA
The Golden Homes Team

Fundamentals based answer: 

Most loans today are resold to Fannie and Freddie. They only buy conforming loans. Conforming loans have impound accounts.

Crudely put, with exception for real portfolio lenders who actually service their own paper, no impound means no loan.

If you use your own money to buy you don't have to follow other people's rules. If you borrow other people's money you have to abide by their rules.

Jan 26, 2011 01:51 PM #6
Rainmaker
598,992
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Sally - I'm glad you liked it.  I've been enjoying this series of answering the most FAQ I get from clients & prospects.

Cynthia - While this has alway been a FAQ I get from clients and prospects and I probably would have gotten around to it eventually, I'm glad you motivated me to move it up on my list of FAQ.

Gene - For anyone working with a lot of first timers, they will get this question a lot.  Even a refi client I had recently asked why he had to have impounds since he didn't have them on his last loan and it was because his ltv was higher than the first loan was and now required the impound acct.

Ellie - I actually think impound accts are not necessarily a bad idea for many people.

Eric - I'm glad you liked it.  I've been wanting to do this post for awhile.

Gold Team - Those are the rules.  While there are still some conditions where a borrower can waive impounds, it is certainly a lot harder and depending on what kind of borrower it is, I may still highly recommend that they take the impounds.

Thx for stopping by folks; I really appreciate it.  Have a good day everyone.  :) 

Jan 26, 2011 02:23 PM #7
Rainmaker
670,834
Evelyn Kennedy
Gallagher & Lindsey, Alameda, California - Alameda, CA
Alameda, Real Estate, Alameda, CA

Donna:

Thanks for the great information.  Very valuable information for my clients.

Evelyn Kennedy

Jan 26, 2011 02:23 PM #8
Rainer
25,635
Sherri Sherpy
iLoan
NMLS #287770

What a GREAT post, Donne...perfectly said!  Now I gotta find 1-5! :)

Jan 26, 2011 03:43 PM #9
Ambassador
1,291,076
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

GOod informative post for buyers!

Jan 26, 2011 07:13 PM #10
Ambassador
1,590,767
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

This is a great explanation of the hows and whys of impound accounts.

Jan 26, 2011 11:27 PM #11
Rainmaker
598,992
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Evelyn - I'm glad you liked the post.  I've been enjoying the series and am planning to continue it.

Sherri - Thank you for the kind words and I hope you like the others too.

Erica - Thx :)

Thx for stopping by ladies; I really appreciate it.  Have a good night too.  :)

Jan 26, 2011 11:31 PM #12
Rainmaker
598,992
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Christine - I tried to answer the types of questions I get from my own clients and prospect regarding impound accts.  I'm glad you liked it.  Thx for stopping by Christine; I appreciate it and I hope you have a good day.  :)

Jan 27, 2011 02:49 PM #13
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Donne Knudsen

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