FHA loans require that impound accounts be established for taxes and insurance

Study for the California Escrow Exam. Dive into detailed content with flashcards and multiple choice questions, accompanied by explanations and hints. Ensure your success on test day!

FHA loans require impound (escrow) accounts for taxes and insurance regardless of the loan-to-value. This means the lender collects a monthly portion of estimated annual property taxes and homeowners insurance and holds it to ensure those bills are paid when due. The rationale is that, with FHA insurance backing the loan, keeping taxes and insurance current protects the property as collateral and minimizes the risk of a lapse that could threaten the loan. Because this protection is built into the FHA program, the requirement applies across all FHA loans, not just high-LTV cases. The alternatives suggesting the need only at certain LTV levels don’t fit FHA practice, where the escrow requirement is standard no matter the LTV.