So You Want to Buy a House in California? Buckle Up for Impound Account Impasse!
Ah, California dreamin'. Sunshine, beaches, celebrities with questionable life choices...and the ever-present hurdle of affording a house. But fear not, intrepid homebuyer! You've saved a chunk of change, found your perfect fixer-upper (or perhaps a fixer-upper-upper), and now you're diving headfirst into the world of mortgages. But wait, there's a wrinkle in the paperwork: impound accounts.
Impound Accounts: Not a Secret Government Squirrel Stash
For those new to the mortgage game, an impound account (also known as an escrow account) is basically a piggy bank your lender holds onto. They collect a portion of your monthly payment to cover your property taxes and homeowner's insurance. Then, when the bills come due, they pay them off for you. It's like having a responsible roommate who never forgets the bills (looking at you, Steve with the mountain of pizza boxes).
But Here's the Thing, California Does Things a Little Different
In most states, if you put down less than 20% on your house (which, let's be honest, in California's market is basically a fantasy), your lender will require an impound account. But California, the land of endless sunshine and even more endless regulations, has a different rule.
The Golden State's Impound Impasse: The All-Important LTV
Here's where things get interesting. We need to talk about LTV, which stands for Loan-to-Value ratio. It's basically a fancy way of saying how much you're borrowing compared to the value of the house.
- In most parts of the US, if your LTV is over 80% (meaning you borrowed more than 80% of the house's value), you'll likely need an impound account.
- But California, with its quirky charm, bumps that number up to 90%.
So, the TL;DR is this:
- If your LTV is 90% or higher in California, you're probably going to have an impound account.
- If your LTV is less than 90%, you might be able to skip the impound account. But there can always be exceptions, so be sure to chat with your lender.
Impound Account: Friend or Foe?
There are pros and cons to impound accounts, but that's a story for another day (and another glass of wine to help decipher the legalese). For now, at least you know the magic number for California's impound account impasse.
Remember, knowledge is power! Now go forth, conquer that mortgage application, and don't forget to factor in those potential impound payments when budgeting for your dream California home (and maybe some squirrel-proof trash cans for Steve).
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