February 1, 2011
The Real Estate Settlement Procedures Act or RESPA was created to protect FHA loan applicants and other borrowers. RESPA requires, among many other things, full disclosure to the buyer with regard to actual costs, obligations and other details of a home loan. RESPA prevents “gotcha” sales tactics in the real estate industry and makes the borrower and home purchasing experience more fair for everyone involved.
Escrow accounts for real estate transactions are covered by RESPA laws–the regulations require full disclosure from the lender to the FHA loan applicant on fees, costs, taxes and other details connected with escrow.
The FHA does not require lenders to set up escrow accounts for FHA borrowers, but the lender may. According to the FHA official site, “Your lender may require you to establish an escrow or impound account to insure that your taxes and insurance premiums are paid on time. If so, you will probably have to pay an initial amount at the settlement to start the account and an additional amount with each month’s regular payment.”
The lender may require a specific amount of cushion in the account to make sure all payments can be fulfilled on the due date; RESPA laws restrict that cushion, “to a maximum of two months of escrow payments.”
RESPA also establishes a timeline for full disclosure from the lender. You must be given what’s called the initial escrow account statement, which details all required escrow payments, plus all payouts or disbursements. This statement is required at the time the loan closes or within 45 days of closing.
The lender must also review the escrow account and give the borrower an annual disclosure statement detailing all activity for the year plus any adjustments to the upcoming year’s payments into the escrow account.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: