Finance
What is the purpose of an escrow account (impound account) held by a mortgage lender?
ATo hold earnest money during the transaction
BTo collect and pay the borrower's property taxes and insurance premiums✓ Correct
CTo hold the seller's proceeds until the deed is recorded
DTo pay the real estate commission at closing
Explanation
Lenders often require an escrow (impound) account where the borrower pays a portion of their annual property taxes and insurance premiums monthly. The lender then pays these expenses when they are due.
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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.
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.
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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