Becoming a grown child's mortgage lender

[sherpa]

@Leaper12, I’m impressed. You seem to be thinking this through clearly, have all your family on board, and are being thorough.

[Leaper12]

Well, I’m getting a lot of good information and support here, yours included. Grateful for that. This all won’t happen tomorrow, but I’ve started the ball rolling.

[twoinanddone]

@bluebayou

almost always a bad deal to let banks invest your money before your bill is due. (I much prefer paying taxes and insurance myself.)

You have a right to pick your insurance company, but almost always the bank requires you to have PITI paid to the bank and then they pay escrow and pay directly to the insurance company and the tax authority. Many banks overcharge, especially for the taxes and then you get a refund from the escrow account. Here taxes are paid 2x year, Feb and May. I have a friend who used to get a huge tax refund and no matter how often she fought with the bank/servicer about the amount of taxes withheld every month, but they never reduced it. And then they’d sell the loan and there’d be a new servicer and the whole thing would start again.

If OP is the lender, OP can set any rules they want for the taxes and insurance, but if they collect them, they may need an escrow account set up; check your state laws.

[bluebayou]

@twoinanddone

You have a right to pick your insurance company, but almost always the bank

there are plenty of non-bank mortgagors. My last few refis have all been thru local mortgage brokers who offered the best rates for my zip code. I always stipulate no inpound account. (yes, I did call around to a half dozen local banks and credit unions, as well as searched online to the national sources.)

When my son bought a place in Philly, he found the best rate thru Citibank. They just assumed he would want an impound account, until I suggested he push back and ask what the mortgage rate would be if he paid his own taxes and insurance. Bank rep first said, it woudl be a higher rate, but then called bak adn said fine, they are trying to build business in the City, so they’d honor the original quote without an impound account. Win-win.

@twoinanddone

check your state laws.

Seriously. Does your state law/regs require an impound account? (never heard if such a thing, but happy to learn new stuff everyday)

[scubasue]

@twoinanddone

but almost always the bank requires you to have PITI paid to the bank and then they pay escrow

I own 4 homes, finananced by three different lenders right now. Two of them are rentals. We escrow taxes and insurance only on the rentals and that was completely my choice. I think whether it’s required varies a lot by lender and down payment amount.

@twoinanddone

That was a requirement after the bank failure of 2007-2008 because of all the low/no down payment loans that went upside down when home values plummeted and the lender failed and the govt bailed out the banks and sold the homes or loans at a loss.

PMI for loans with less than 20% down has been a requirement since the dark ages.

[sherpa]

I agree that it makes better economic sense to handle your own taxes and insurance.

I have 4 commercial real estate mortgages and the lender recently informed me they would no longer require an impound account. I surprised myself by opting to continue the accounts, just for simplicity sake. Not the best economic decision, but what am I going to lose, a couple bucks a year in interest?