Mortgage Escrow Impound Rules

Number of Months Property tax impound advance collection

Mortgage Lenders require tax and insurance impounds on high loan to value loans, called mortgage escrow accounts

California impounds are not required IF the loan is less than eighty percent loan to value.

• Closing month January – First Payment March, 6 months impounds required
• Closing month February – First Payment April, 1 months impounds required
• Closing month March – First Payment May, 2 months impounds required
• Closing month April – First Payment June, 3 months impounds required
• Closing month May – First Payment July, 4 months impounds required
• Closing month June – First Payment August, 5 months impounds required
• Closing month July – First Payment September, 6 months impounds required
• Closing month August – First Payment October, 7 months impounds required
• Closing month September – First Payment November, 8 months impounds required
• Closing month October – First Payment December, 9 months impounds required
• Closing month November – First Payment January, 4 months impounds required
• Closing month December – First Payment February, 5 months impounds required

The months are collected up front and held in trust to make sure that property taxes are paid upon when they are due. You are required to pay one-twelfth of the estimated cost of the escrow items each month. 

Be mindful, these amounts can change, you usually have to put some additional money into the account as well. Property tax bills increase, especially if you bought a home where the seller was taxed at a lower rate than the current purchase price. You will receive a whopping supplemental tax bill in about six months after your close, or as soon as the county catches the increase. Expect any supplemental tax or insurance increase that can affect how much is needed to be collected on your impound account. If you experience a supplemental tax bill the amount you have in escrow may not cover the entire amount due and therefore a shortage would be applied to your new impound account balance.

Lenders  require impound accounts for a single-family, owner-occupied dwelling if:

1. state or federal regulatory  requires the account
2. a state or federal governmental lending or insuring agency (like FHA or VA  Fannie FReddie Ginnie) made or guaranteed the mortgage
3.  borrower fails to pay two consecutive cycles of property taxes 
4. the original loan to value is 90% or more of the sale price or appraised value
5. there are two or more loans secured by the property, and the combined principal amount exceeds 80% of the appraised value of the property
6. the loan is a higher-priced mortgage loans established in Regulation Z, whether or not the loan is a higher-priced mortgage loan (a HOEPA or High Cost)
7. the loan is refinanced  in connection with a lender’s home-ownership preservation program
8. if the borrower does a modification