Mr Georges also brought up a point worth elaborating on. That is, how long do you have to pay mortgage insurance? The rule is that you may ask your lender to terminate the mortgage insurance once the outstanding loan balance is 80% or less of the original home value. (Appreciation in home value does not benefit you without a refinance.) Should you forget to ask for the mortgage insurance to be terminated, then the lender is required to do so when your loan balance is 78% of the original home value.
Robert T. Boyer, Ph.D.
Oh by the way, I'm never too busy for your referrals.
Reserve accounts are mandatory with any conventional loan with less than a 20% down payment. Reserves are also mandatory with all FHA/HUD loans for a given number of years and when the equity meets or exceeds 22% (20%) for conventional loans. As mentioned very nicely by a few of the other respondants these accounts are used as a type of savings account whereas the lender pays out theProperty taxes and Home owners inusrance due on your behalf. Note that these accounts are regulated by Federal guidelines and do yield a very small interest retrun to you. I would suggest getting a few Mortgage Brokers or Bankers to offer you complete Good faith estimates inclusive with all Third party fees like escrow, title, etc. Apples to apples so you can make an educated choice. If we can be of assistance don't hesitate. FYI get the estimates but do not allow your credit to be re ordered by each company. This could lower your Credit scores.
Mortgage Services of America, INC.
Simply, you are setting up a savings accout that will have money in it to pay taxes and insurance. If you put too much in, your payment PITI (principal interest taxes and insurance) will be decreased as time goes on. If there is not enough, your payment will go up.
If your equity goes up, you may be able to apply for an elimination of mortgage insurance (which is different from hazard insurance). I think it is 20% equity.
The number of months of taxes impounded depends on the month in which you close escrow. Basically the lender needs to collect enough taxes to be sure that they have enough funds to pay the bill when it comes due (plus they like to keep a two month "padding" in the account.) So for example, if you close escrow in April, 4 months of taxes will be collected. You will not have a mortgage payment due until June, at which point another month of taxes will be collected. Each payment will add another month to the account, which means in November, when the next tax bill is due, there will be 10 months of taxes in the account. The lender pays out a 6 month payment to the county, leaving 4 months in the account. The December through March payments add another 4 months to the account, and then another 6 month installment is paid out in April, leaving a 2 month pad in the account.
The hazard insurance must always be paid up a year in advance, regardless of whether you pay it on your own, or if you have an impound account and the lender pays it for you.
Hope this helps!
Sr Loan Officer
Bank of Manhattan
The reserves in your itemization are required for an impound account. I believe if you closed this month you would have 2 months of both taxes and insurance. This is why... Property taxes & Insurance are due twice a year in CA. Letâ€™s assume the first part of your taxes and insurance are due in April and your bank will need to pay this first round on your behalf. Let's also assume your first payment was this month, February. That means if you make a payment in Feb and then again in march and finally April, you will only have 3 payments of taxes and insurance paid by the time the taxes and insurance are due. That means the bank would either have to ask you to come up with the other 3 months needed to pay the 6 month that is due. Well, the bank cannot expect you to pay 3 months of taxes and/or insurance at one time. So they preload your account with 3 months. If the account is preloaded with 3 months of reserves then by the time April comes around the 3 months of reserves and the 3 months you will be paying (Feb, march, and April) will add up to 6 months and therefore be enough to pay the county its taxes and your insurance company its insurance payment. I hope that helps and clarifies everything for you. If not feel free to drop me an email. I am both a loan officer and REALTOR
Jesse G. Salas
Homes for Heroes San Diego
I hope that is helpful.
Ascent Real Estate