What Is an Escrow Impound Account and How Does It Work for San Diego Home Buyers?

What Is an Escrow Impound Account?

A mortgage escrow impound account is a separate account maintained by your mortgage servicer that collects a portion of your property taxes and homeowner's insurance premiums each month as part of your total mortgage payment. The servicer then pays these bills on your behalf when they become due.

What Your Monthly Impound Payment Includes

• Principal: The portion paying down your loan balance
• Interest: The cost of borrowing
• Property taxes: Collected monthly, paid to the county twice annually
• Homeowner's insurance: Collected monthly, paid to your insurer annually
• PMI or MIP: Mortgage insurance premium if applicable
• HOA dues are NOT included in the mortgage payment — paid separately

Is an Impound Account Required?

Most conventional lenders require an impound account when the down payment is less than 20 percent of the purchase price. VA and FHA loans also typically require impound accounts. If you put 20 percent or more down on a conventional loan, you may be able to opt out of an impound account and pay your taxes and insurance directly.

Upfront Impound Requirements at Closing

At closing, you will be required to fund your impound account with 2 to 3 months of property taxes and 1 to 2 months of homeowner's insurance. This is in addition to your down payment and closing costs. On a San Diego property with $12,000 in annual property taxes, your initial property tax impound deposit might be $3,000 — factor this into your total cash-to-close calculation.

What Happens to Impound Funds?

Your servicer analyzes the impound account annually and adjusts your monthly collection amount if your taxes or insurance have changed. If the account has a surplus, you may receive a refund check. If it is short, your monthly payment will increase to cover the shortage — sometimes creating payment surprise for buyers who did not anticipate tax reassessments after purchase.

Related Reading on RiederHomes.com:

→ Blog #6: Buyer Closing Costs

→ Blog #2: Mortgage Pre-Approval

→ Blog #1: How Much Can I Afford?

→ Blog #4: Down Payment Requirements

— Mance Rieder, Broker Associate | Rieder Homes Group | REAL Broker | riederhomes.com | 858-295-0556