The most confusing and hard to explain portion of a buyer’s closing costs is the Impound Account Setup. This "cost" is really NOT a cost. It is simply prior payment of obligations you will have in the future. They are tax deductions. (One of two joys of home ownership.)

Taxes are paid twice per year. They are prorated in the escrow process; both buyer and seller paying or gaining a credit of his share up to the date of closing escrow.

Insurance is prepaid for one year in escrow.

An account must be set up so these costs/bills can be paid from the impound account (sometimes referred to as an "escrow account") when they become due. Bills are sent directly to and paid by the lender - with a copy to the owner. (Keep these copies for your yearly income tax filings.)

If an escrow closes on the 15th of December, the first payment will most likely be the 1st of February; hence, five months impounds are required to be deposited into buyers' account with the lender during escrow.

$200,000 sales price 
             x 1.25% = $2,500 yearly tax

                       $  550 approx yearly insurance

   Total yearly costs  $3,050 /12  =  $254 / month  

 

   $254 x 5 months (from chart below)  
	= $1,270  amount to be included in the closing costs.