Sep
08

How many months of taxes and home owners insurance do I have to prepay on an impound account on a home loan?

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homeowner loan

How many months of taxes and home owners insurance do I have to prepay on an impound account on a home loan? The bank is charging me 4 months of prepaid taxes and an additional 6 months of prepaid taxes and 2 months of prepaid homeowners insurance and 1 year prepaid of homeowners insurance. I will also be paying them in my monthly statement.

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7 Comments

1
Biggie @ Arbor Mortgage
May 31st, 2009 at 5:27 pm

That sounds about right. It is a formula based on when your taxes & insurance are due. They know what they are doing, don’t worry!

2

What you’re describing is very typical. 14 months of homeowners insurance is extremely common. That way, a year from now when the yearly insurance bill comes due, there will be enough in your impound account (plus a little bit more in case there’s an increase).

The taxes are a bit different but only because they don’t come due exactly one year from when you buy the property. The due date varies from one county to another (they’re due Nov 15 in my area) but the concept is the same. Whatever the date the taxes come due they want to have 14 months worth of taxes in your impound account.

3

There is a 2 months cushion required. This doesn’t mean you only pay 2 months. It depends on when taxes & insurance are due. Example: In my state taxes are due in Oct. late in Dec. So my loans that are closing this month have a first payment date of 12/1/08. We would collect 14 months taxes so that we can pay the 12 months that are due now and have a 2 month cushion. Same for homeowners ins. Say your homeowners insurance is due in April- The calculation is done by taking the number of months payments you will make until April (which would be 5 – dec-april) and subtract that number from 14 so I would collect 9 months insurance. I know it’s confusing but it is standard & does not change depending on your lender. Hope this helps.

4

It really depends on what is due and when. If this is for a purchase your escrow will include the first 12-month’s premium for Home owner’s Insurance and at least 3 months (1 quarter) for property taxes. In addition there will be 3 to 4 months held as escrow for both taxes and insurance. This is common. If the last quarter taxes are due, you may be charged for that as well.

If you have any doubt about the monies being charged and what is being places in escrow, ask your closer, attorney, loan officer, etc to provide you with the Escrow Impound statement for your review.

One of the first things you want to know, assuming this is for a purchase, is that the last quarter taxes were paid. If they were not, make sure your attorney puts a note in the contract requiring the seller to pay the taxes from the proceeds of the sale or before.

Good Luck!

5

your escrows are figured on when the bill is next due. Most lenders require an additional 2 months reserves for anticipated increases in taxes and insurance.

if your taxes are due in 6 months then you would prepay 8 months on the hud-1 at closing…

6

I believe it’s called an escrow account — never heard the term impound account before. And that does sound about right.

You should also expect adjustments to the escrow amount based on the actual costs. It is very likely your actual property taxes will be more than the estimated amount. Your purchase price tends to set the new appraised value for your home.

7
Paul in San Diego
June 8th, 2009 at 10:04 pm

Different loan companies have different requirements. And, this could also differ based on what time of year you buy the home. For example, if it’s shortly after when the property taxes have been paid, they may require less up front, since you will be paying that into the impound account for a longer time. When I bought a rental condo, one loan company wanted 6 months of insurance paid up front. But, I went with a different company, who wanted 14 months of insurance paid up front. Go figure.

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