Finance
In South Dakota, 'impound accounts' (also called escrow accounts) required by lenders for property taxes and insurance benefit the lender by:
AEarning interest that reduces the borrower's rate
BEnsuring taxes and insurance are paid, protecting the lender's security interest in the property✓ Correct
CAllowing the lender to collect additional fees monthly
DReducing the borrower's monthly payment amount
Explanation
Lenders require impound accounts to ensure that property taxes and insurance are paid current, protecting their security interest. Unpaid taxes or uninsured properties create risks for the lender's collateral.
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Key Terms to Know
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.
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.
EscrowA neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
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