July 15, 2019
Orion’s brokers know that including funds for property taxes and property insurance in their client’s monthly payment to Orion, or any lender, is called "impounding" or "escrowing". These funds are held for Orion to later disperse to county tax collectors and insurance companies. There are certain loans that require the impounding of taxes and insurance such as FHA, VA and conventional mortgages with greater than 89.9% LTV. For loans where the borrower has the option to impound or not, should you tell your client to let Orion do the work?
The simple aspect is, when your client has an impound account, Orion will put, on your monthly mortgage statement, for the principal and interest due for the month, plus an amount equal to your client’s annual property taxes and annual insurance premium broken down to a monthly amount, i.e. the total due divided by twelve. When property taxes are due, Orion sends the amount due to the county tax collector, when the insurance renewal is due, Orion sends the amount due to the insurance company.
Less simple is setting up the impound account. When closing on your client’s mortgage, either purchase or refinance, if you want to have Orion impound the taxes and insurance, your client will need to provide the funds for establishing the account at closing.
The first thing to understand when determining how much they will need to bring in to fund your impound account is that in the twelve months after closing the loan your client will make only ten mortgage payments before the insurance is due and twelve payments will be needed to make the full annual renewal. So, at closing the first-year premium will be collected, plus the two months needed to ensure Orion has a complete year of premiums. Property tax collection is more complicated yet. Depending on when the close is, your first payment due date, if taxes are paid annually or semi-annually (dependent upon the state you live in) and when the taxes are due next. All these factors must be considered to calculate the amount to be collected for the set up the impound account.
Many borrowers like the convenience of including their property taxes and home owners insurance payments with their mortgage payment. It is convenient, and you do not have to worry about paying your governor in the same months you pay Santa Claus and Uncle Sam. If you have strong financial discipline, however, you should consider self-impounding the amount for taxes and insurance monthly into a separate account to pay those fees when due. Talk to your NLC Personal Mortgage Advisor about what makes the most sense.