Finance
What is the purpose of a mortgage escrow account?
ATo hold the seller's proceeds until title is confirmed
BTo collect and pay property taxes and homeowner's insurance on behalf of the borrower✓ Correct
CTo accumulate funds for the borrower's next home purchase
DTo hold the buyer's down payment until the loan is approved
Explanation
A mortgage escrow account collects a portion of property taxes and insurance premiums each month from the borrower so the lender can pay these bills when they come due, protecting the lender's collateral.
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Key Terms to Know
Escrow
A 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.
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.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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