An impound account is a budgeting tool for paying monthly property taxes and homeowners insurance.
An impound account is a budgeting tool for paying monthly property taxes and homeowners insurance. An impound account allows the homebuyer to pay their semi-annual (CA) or annual (TX) property tax and annual insurance bills in monthly installments to the mortgage servicer as part of their monthly mortgage payment. The servicer will then take care of automatically making the payments to the County (for property taxes) and Insurance Provider (for homeowner’s insurance) once the bills come due.
Many buyers favor the budgeting mechanism of the impound account, while others do not favor the associated upfront costs. While there are no additional ‘fees’ from establishing an impound account, there are upfront closing costs (i.e., several months’ worth of homeowners insurance and property taxes) collected to help cushion the account, helping to ensure the servicer never runs out of funds to make the payments on the buyer’s behalf.
Impound accounts are generally required under federal lending law when if the borrower is putting less than 10.01% down (in CA) or 20% down (in TX) and are always required for FHA loans.