Finance
What is the purpose of an escrow account (impound account) that a mortgage lender maintains for an Illinois homeowner?
ATo hold the buyer's earnest money during the purchase process
BTo collect monthly deposits for property taxes and insurance so the lender can pay them when due✓ Correct
CTo hold the seller's proceeds until the mortgage is paid off
DTo fund home improvement projects approved by the lender
Explanation
An escrow (impound) account is maintained by the lender to collect a portion of the borrower's monthly payment for property taxes and homeowner's insurance. The lender pays these bills when they come due from the escrow account.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Earnest MoneyA 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.
Math Concepts
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