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Chrisman's Corner: Primer on Impound Accounts

JMAC’s brokers are often asked, “Do we have to have an impound account for our taxes and insurance?” Our experienced brokers explain to clients that paying the lender the taxes and insurance obligations as part of their monthly payment is known as having an impound or escrow account.

They also tell the borrower:

If you have a FHA or VA mortgage, you have no choice regarding the impound account regardless of how much of a down payment you make; if you have a conventional mortgage with 10% or less down, an impound account is required. At closing for a purchase or refinance mortgage, you will need to have funds to establish your impound account for taxes and insurance.

It is pretty well known that lenders like JMAC as well as investors want borrowers to have impound accounts—they want to ensure taxes are being paid and the property retains insurance. But most state laws prohibit lenders from requiring impound accounts on all loans.

For loans where it is permissible to have required impound accounts, lenders will do what is allowed and require taxes and insurance payments be part of the monthly mortgage.  Because they want borrowers to have impound accounts but cannot require them, some lenders charge a higher price for loans without impound accounts, ranging from 0.125 to 0.25 points depending on the lender and the loan type (or $125 or $250 per $100,000 in loan amount).