Finance
What is the purpose of an escrow account (impound account) held by a lender?
ATo hold the seller's proceeds until title transfers
BTo collect monthly amounts from the borrower to pay property taxes and insurance when due✓ Correct
CTo hold earnest money during the inspection period
DTo fund the lender's reserve requirements
Explanation
Lender escrow accounts (impound accounts) collect monthly amounts from borrowers in addition to principal and interest, which the lender holds and uses to pay property taxes and homeowners insurance when they come due. RESPA regulates these accounts and limits the amount lenders can hold.
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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.
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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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