I get asked this question quite often.
When you take out a loan on real property you may have two options for how you want to pay your property taxes and hazard insurance. You can either pay them in large sums twice yearly when they are due, or you can pay them monthly via impounds.
If you make the decision to pay your taxes and insurance monthly (most people do) then the lender collects them along with your monthly mortgage payment and pays them when they are due. This is an especially good option for people who aren’t the best at saving money. The lender does collect a very small fee for this service.
There is another important part to impounds you should know. When you close a loan that has impounds you will at that time be required to “fund your impound account”. This means that at closing in addition to coming up with your regular closing costs you will have to come up with any where from 2 to 9 months worth of impound payments up front. The lender collects this money and puts into an account for you. This is their way of making sure there will always be enough money in your account to pay your impounds. This money required up front is not technically a lender fee since it will be used to pay your taxes. Keep in mind this can be a substantial sum (thousands of dollars). Exactly how much you need to come up with at closing will depend on a few things like, your county’s tax rate, the purchase price of your home, and what month of the year you close escrow on your home.
Lastly you may have noticed in the first sentence of this post I said you “may have two options for how you want to pay your property taxes and hazard insurance”. The reason I used the word “may” is because in many scenarios you don’t have a choice. For instance, as of today most lenders require that you have impounds on any purchase where you will have less than a 20% equity position. This means that if you down payment is less than 20% of the purchase price the lender is going to require impounds.
It is also important to note that it may cost you a little extra to get a loan without impounds. I will get into why this is in another post in the future.
Now that you know what impounds are you are well on your way to being an Intelligent Buyer! Feel free to ask if you have any more questions.
Andrew
This is a question we get asked frequently. Can we pay you your rebate in escrow instead of sending you a check after closing?
Yes, we can! We don’t mind doing this at all, but there are certain possible complications that may arise.
The first complication is usually not a big issue but is worth mentioning. Some traditional real estate agents are worried about the fact that we are giving you a rebate. You see if we give you a buyer’s rebate in escrow, it goes on the closing statement. Some sellers agents worry that their buyer will see this and demand lower fees from from them. In the two years that we have been in business, we have never run into a complication involving this, but that doesn’t mean it is not possible.
The second complication is the most serious. Some lenders and some loan programs will not allow us to credit you money in escrow. Some lenders view your ability to come up with your own closing costs, as indicator of your ability to pay your mortgage on time. I don’t agree with this line of thinking, but I don’t make the decisions. Also, some loan programs limit the amount of money you can have credited by your agent in escrow.
The bottom line is that if you want to get your rebate credited in escrow, talk to your lender. If it is O.K. with them, it is certainly O.K. with us.
Andrew
Let me start by apologizing for the downtime we experienced at the end of this month. IntelligentBuyer.com has been up and running since June of 2008. During this time, we have never had any significant downtime until this month. As you may have noticed in April, we upgraded our website. With the new/improved website came a lot more traffic that our old server just wasn’t prepared to deal with. We went from about 2k web visitors in March to about 15k+ in May causing our old server to crash multiple times over the first week of this month. If you tried to visit our website during this time, or if you tried send us emails during this time, you may have experienced this. Again I apologize, we should have been better prepared, we learned our lesson.
The good news is obviously that the increase in traffic also caused a significant increase in Intelligent Buyers requesting our services. The second part of the good news is that we upgraded to a new high end server that should keep us from having the same issue.
Thank you to our loyal visitors, and all of our Intelligent Buyers. We look forward to improving our services over the next couple of months.
Andrew
