An impound account (also called an escrow account) collects monthly installments for property taxes and homeowner's insurance so the lender can pay those bills on the borrower's behalf. Whether it is required depends on loan type, LTV, and lender guidelines.
When Impounds Are Required
- ✦FHA requires impounds on all loans, no exceptions.
- ✦VA requires impounds in most cases, though some lenders allow a waiver with borrower approval.
- ✦USDA requires impounds on all guaranteed loans.
- ✦For conventional loans, impounds are generally required when LTV exceeds 80%.
- ✦Some lenders require impounds on condos regardless of LTV due to HOA exposure risk.
Waiving Impounds on Conventional Loans
Borrowers with at least 20% equity in a conventional loan can often request an impound waiver, but the lender will typically charge a waiver fee in the form of a pricing hit, usually 0.125% to 0.25% to the rate or equivalent discount points. The lender discloses this fee on the Loan Estimate. Some lenders do not allow waivers for second homes or investment properties even at high equity levels.
What Goes Into the Impound Account
Standard impounds cover property taxes, hazard insurance, and flood insurance if applicable. Some lenders also require MIP and PMI to be impounded. At closing, the lender collects an initial deposit to fund the account, plus a two-month cushion as permitted under RESPA. Total initial escrow payment on a typical purchase can range from two to six months of taxes and insurance depending on where property taxes fall in the calendar year.
Aria can detail impound requirements by loan type, explain waiver pricing, and calculate how much escrow will be due at closing for any scenario. Ask at vicariointel.com.
7-day free trial. No credit card required.
Ask Aria About Escrow and Impound Account Requirements →