An impound account, also known as an escrow account, is required on VA loans for the life of the loan. The purpose of the impound account is to make sure the Veteran stays current on the property taxes and home owners insurance. The last thing anyone wants is a property tax lien, which could take precedent over a VA mortgage. Most lenders in California require an impound account on any type of loan when there is less than a 10% down payment. The FHA loan program, which is another government loan program available to anyone and only requires a 3.5% down payment also requires an impound account for the life of the loan.
Is the Impound Account Interest Bearing?
In most states the Escrow Account is not interest bearing, meaning the Veteran does not earn interest on the money being held in the account on their behalf. However, in Orange County and in California it is now law that escrow accounts earn interest which is paid out to the homeowner. However, don’t expect to make a killing. The amount of interest earned will be minimal.
The Impound Account Helps VA Homeowners Budget Their Cashflow
This “forced savings” account is meant to help the Orange County Veteran budget their finances. It is not uncommon for homeowners to not budget for the semi annual tax bills or annual homeowners insurance payments. Property taxes in Orange County, CA are due on November 1 and then again on February 1. Tax payments that are not made prior to the grace periods of December 10 and April 10 become delinquent, which carries penalty fees. Also, it could turn into a tax lien. Having an escrow account prevents all this.
For homebuyers and homeowners who are interested in learning more about VA financing and all the benefits the program offers, contacting a local Orange County VA loan officer is the first step.
tstorm (at) ochomebuyerloans.com