Certain expenses associated with acquiring property are required to be settled in advance of ownership. These encompass items such as homeowners insurance, property taxes, and initial mortgage interest. For instance, a lender may require a homeowner to prepay several months of property taxes into an escrow account at closing.
Advance settlement of these obligations ensures financial institutions are protected and reduces the risk of borrower default. It provides a structured approach to managing ongoing property-related expenses and contributes to a more predictable housing budget for new homeowners. Historically, such requirements have evolved to provide greater security for both lenders and borrowers in real estate transactions.
