Finance
Mortgage escrow accounts are used by lenders to:
AHold earnest money until closing
BCollect monthly deposits for property taxes and insurance to ensure they are paid✓ Correct
CReserve funds for major home repairs
DHold the seller's net proceeds after closing
Explanation
Lender escrow accounts (impound accounts) collect monthly deposits from borrowers for property taxes and homeowner's insurance. The lender pays these bills when due, reducing the risk of unpaid taxes or lapsed insurance.
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Key Terms to Know
Earnest Money
A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
EscrowA neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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