Mark Wills explains escrow and impound accounts and what PITI means in a mortgage payment. Notaries learn these terms to help borrowers understand what they're signing.
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Let's talk about one of the biggest questions a borrower has for a notary public loan signing agent. Hi there, I'm Mark Wills, America's largest notary signing agent coach and I'm often asked by new notary loan signing agent what in the world does an escrow account or an impound account and what does PITI stand for? And the biggest follow up question I get is how do lenders calculate what to collect monthly for these escrow or impound accounts? So why is this important for you to know as a notary loan signing agent? And it is because when you're doing a loan signing, the borrower may ask you a question around their impound account escrow account and being able to point out the correct answers without needing get the loan officer on the phone can save you a lot of time at a signing appointment. So first things first. A homeowner owes the county the property is located in, property taxes twice a year and their homeowner's insurance bill once a year. So logically, the homeowner would set aside money in their own checking account for those bills every month and pay the bills when they come due. However, there are some homeowners who do not properly save for those bills and then pay them late or don't pay them at all. And that is a problem. A big problem. So to solve that problem, banks either require or give the homeowner an option of giving the bank money each month for those bills to to ensure they're always paid out on time by the bank. And that is what an escrow account or impound account is a savings account for a homeowner's property taxes and homeowners insurance that's collected by the lender. That's it. The bank simply increases their mortgage payment by the amount of money they should be saving for their taxes and insurance and adds that to their monthly mortgage amount. Easy peasy. It's a free service all lenders do to ensure property taxes and fire insurance are all always paid on time. So in conclusion, a borrower's taxes and insurance are held in an escrow account, hence the name escrow account. Or you can say their taxes and insurance are impounded, AKA they're collected with their mortgage amount, hence the name impound account. Therefore, an escrow account or an impound account are literally the same thing. So, wondering how it works? Here it is. So again, property taxes are due twice a year based on a percentage of the home's value. Homeowners insurance, also known as hazard or fire insurance, is Usually billed annually. So the lender takes the total of what is due a year for taxes and insurance and divides that by 12 and then they add that amount to the mortgage payment. So let's do an example together. Let's say the taxes are $1,200 a year and the insurance is $600 a year. That is $1,800 a year. That is total that is due. So the bank takes the $1,800, divides that by 12 and that amount would be $150 a month. So then they simply add that $150 a month to the mortgage payment. Now let's say the mortgage payment is $1,000 a month. The bank would then add the $150 to it. So now the total mortgage payment due with an escrow account is eleven hundred fifty dollars a month. And now you understand how an escrow account monthly installments are calculated. So what is a piti, a common acronym in the real estate industry? Well, that's easy too. Every mortgage payment is made up of principal and interest. The principal of the payment is what goes towards payment, paying down the loan and then the interest part of the payments where the bank collects as a fee to lend the money. So now you know what PI is principal and interest. And the TI is just taxes and insurance. So PITI is just principal, interest, taxes and insurance. Also known as the borrower's total monthly payment, including their escrow account. During a signing, remember the note shows the principal and interest, but the full payment is shown on the payment letter which will show the mortgage plus the escrow account. And look at you. You understand the lending industry which will make you a more efficient loan signing agent. And that's why I teach the loan signing system to pull out the note and payment letter first as they're the most important docs to review with the borrower. They always want to know what their payment is. Now you know what an impound account is, how it's calculated and what PITI means. To get more information on being a notary signing agent, click the link below. Subscribe for more tips and tricks as a notary signing agent. And when you're ready to become a top loan signing agent, enroll in the loan signing system course by clicking below. I'm Mark and I look forward to helping you succeed as a notary loan sign, notary public loan signing agent.
