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Talking about your mortgage: Escrow (or reserve) funds
Some lenders require that you set aside money in an escrow (reserve) account
to pay for property taxes, homeowner’s insurance, and flood insurance (if you
need it). Lenders use escrow funds to ensure that these items are paid on time
to protect their interest in your home. With an escrow account, money is held
by the lender or the lender’s agent, who then pays the taxes and insurance bills
when they are due. At settlement, you may need to provide some payment into
this account, depending on when payments will be due. For example, if you are
buying your home in August and property taxes are due the following January,
you will need to deposit funds into your escrow account at settlement so that
you have enough to pay the taxes when they become due in January.
Mortgage
Terms Defined:Private mortgage insurance
(PMI) protects the lender
against a loss if a borrower defaults on the loan. It is usually required for
loans in which the down payment is less than 20 percent of the sales price or,
in a refinancing, when the amount financed is greater than 80 percent of the
appraised value.
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