The maximum property tax advance that can be escrowed by a lender is?

The maximum property tax advance that can be escrowed by a lender is?

• A. One-third of the annual property tax.
• B. One-fourth of the annual property tax.
• C. One-sixth of the annual property tax.
• D. One-half of the annual property tax.

Answer: (C)

The correct answer is that a lender can escrow a maximum of one-sixth of the annual property tax. This method is designed to ensure that there are adequate funds available to cover property tax payments when they are due. When a lender sets up an escrow account, they collect a portion of the total annual property tax each month from the homeowner, creating a reserve that can be used to pay the tax bill when it comes due. By limiting the amount that can be escrowed to one-sixth of the annual property tax, it creates a balance that helps the borrower manage their cash flow throughout the year, ensuring they are not over-contributing to the escrow account which would tie up their funds unnecessarily. Understanding this maximum limit assists buyers in budgeting effectively for their annual property taxes while also assuring lenders that there is a reasonable and manageable expectation for escrow contributions. This regulation helps promote financial stability for both the lender and the borrower.

The correct answer is that a lender can escrow a maximum of one-sixth of the annual property tax. This method is designed to ensure that there are adequate funds available to cover property tax payments when they are due.

When a lender sets up an escrow account, they collect a portion of the total annual property tax each month from the homeowner, creating a reserve that can be used to pay the tax bill when it comes due. By limiting the amount that can be escrowed to one-sixth of the annual property tax, it creates a balance that helps the borrower manage their cash flow throughout the year, ensuring they are not over-contributing to the escrow account which would tie up their funds unnecessarily.

Understanding this maximum limit assists buyers in budgeting effectively for their annual property taxes while also assuring lenders that there is a reasonable and manageable expectation for escrow contributions. This regulation helps promote financial stability for both the lender and the borrower.