Whether you are selling or buying a home, you should always go through a warranty period. Part of the process involves establishing a lender account, as they don’t trust you.
Lenders don’t really trust you
Escrow is not a process that is used only in real estate transactions. It is often used in business transactions to create a security zone for the transfer of something, often trade secrets or intellectual property. In the case of real estate, the escrow is used to create an impartial, centralized company or agent that can collect the documents that are specified in the real estate transaction documents. This is simply called an escrow and is not a lender account.
A lender account is a bank account. It is a problem that a buyer must deal with, as it is linked to any mortgage loan on a property. The lender doesn’t really trust you, even if they agree to give you a home loan for hundreds of thousands of dollars. As a result, it demands that a bank account be established, an account that it controls.
The lender uses the bank account to make sure certain bills are paid – debts that could otherwise cause problems for the lender if not paid. These debts and liabilities include homeowners insurance, private mortgage insurance, and real estate taxes, such as property taxes. The lender will specify the final costs to be covered in the loan documents.
Every month, the borrower must make a deposit in the bank account. The lender takes this money and pays the corresponding debts and liabilities related to the property. Depending on the loan and the lender, the borrower may need to keep a cushion on the account. A cushion refers to a minimum balance. The mattress is necessary to ensure that there is money to cover the bills if the borrower does not make the monthly payment.
Lender accounts make sense from the lender’s perspective. Buyers should make sure they understand the required payments, as large mattress requirements can seriously affect a buyer’s cash flow.