buy a home with bad credit & escrow


What is an escrow impound account ?

Escrow accounts,sometimes referred to as escrow impounds are set up by your lender in which the borrower pays for the property taxes, monthly insurance and mortgage insurance, as part of the mortgage payment. If you buy a home with bad credit the lender may require an escrow account.

Usually when your loan to value is above 80 to 90 percent such an account is required by your lender in order to facilitate the monthly flow of property taxes and insurance.

The advantage of escrow accounts is that an orderly transfer of monthly mortgage payment includes all your property taxes, home insurance and mortgage insurance in one lump sum. While the money is not available to you to be placed in interest bearing accounts and earn interest is a disadvantage.

Many loan programs allow you to choose impound accounts but most programs at higher loan to value or bad credit refinances, require mandatory escrow impounds.

The lender collects a higher amount initially and builds a reserve and than pays the taxes and insurance as needed, thereby keeping the collateral unencumbered and clean from non payment of property taxes which take precedence on lender’s deed if not paid.

Escrow accounts are essential in some prime loans and are required. You always create an escrow account with your lender to pay your taxes and insurance on a monthly basis and not have to wait at the end of tax period and default and pay penalties.

 

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