A quick note on the relationship between credits, closing costs, and impound accounts.
I was recently when talking with a first time home buyer about the strategy involved in determining whether or not to use impound accounts. Here’s a link to a refresher on those.
One way to look at impound accounts is convenience. Not having to think about paying your taxes and insurance is nice! Another benefit is budgeting. By using impounds you don’t have to worry about budgeting for those eventual lump sums because they are automatically paid every month with your mortgage.
On the other hand, maybe you prefer not doing impound accounts because that money could be used to invest and earn a return that would eventually help pay the cost of your property taxes and insurance. That is how I looked at it, so we chose not to use impounds. But, this post is more about negotiating and how impound accounts come into play regarding your negotiations as a buyer in escrow.
Suppose you are a buyer getting financing, and your total closing costs on your purchase amount to $20,000 with impound accounts, and $14,000 without. And suppose you are approaching your contingency removal timeline and intend to make a request to the seller in the form of a credit. A loan officer will tell you that credits may not exceed the amount of your closing costs, so one factor in your decision on whether or not to use impound accounts would be how much you plan to negotiate. If your negotiation exceeds the amount of your closing costs, that additional amount over your closing costs would need to be negotiated in other ways such as a purchase price reduction or a seller repair. If your request is less than your closing costs, then impound accounts won’t be a factor in your negotiation. But, in the scenario above, if you wanted to ask for $20,000 instead of $14,000 you would have to have impounds.