Impound Accounts Explained: Why Your Lender Holds Funds

Aug 25, 2023

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Figuring out where all of your money will go when you buy a home can be confusing, especially when you’re told your funds will be held in an impound account.

Impound accounts go by different names depending on where you live, and the lender sets them up to cover property-related expenses. Many mortgage services require you to pay taxes and insurance through an impound account.

This article covers why your lender is holding funds, how impound accounts work and whether they’re required before you can close on your home.

What Is An Impound Account?

An impound account holds your funds to pay for real estate expenses outside of a mortgage, such as property taxes and homeowners insurance. It isn’t an account you have to worry about managing yourself because your lender controls it.

However, this doesn’t mean you can ignore this account because there is a possibility you could end up with a shortage if your insurance premiums or taxes increase. If there’s a shortage, you’ll be responsible for paying the difference.

Impound Account Vs. Escrow Account

Some confusion on this topic can arise because impound accounts can go by different names. Impound accounts are also known as escrow accounts in most areas.

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