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About Real Estate: Some borrowers can’t avoid escrow accounts

Millions of homeowners across the United States are legally obligated to pay part of their annual property-tax bill on a monthly basis, including most of those who have FHA or VA loans.

DEAR MR. MYERS: I want to purchase a home with a low-down-payment loan backed by the Federal Housing Administration. The mortgage broker I’m using says the FHA will require that I have a special “escrow account” and pay about 1/12 of my estimated property taxes into it each month, but I was under the impression that I could just pay the taxes in a lump sum when they come due. Can you please clarify?

ANSWER: Most borrowers who make a down payment equal to 20 percent or more of their home’s value have the option of either paying their taxes directly when they come due, or instead putting a small portion of their estimated bill each month into a special escrow or “impound” account that the lender can automatically tap to pay the tax bill when it arrives.

However, most borrowers who get federally backed loans through either the FHA or the VA are required to have such accounts. One reason is that, since FHA and VA loans are essentially backed by taxpayer money, both agencies want to make sure that borrowers pay their property-tax bills as soon as their tolls come due.

DEAR MR. MYERS: We are planning to look for our first house this fall, so we are following your advice to get a copy of our credit report first to make sure everything on the report is correct. Which credit-reporting company should we use?

ANSWER: Use one of the “big three” national reporting agencies. They are Experian (1-888-397-3742; www.experian.com), TransUnion (1-800-888-4213; www.transunion.com) and Equifax (1-800-685-1111; www.equifax.com).

All three can now provide most consumers with reports over the Internet, which is faster than ordering a report and having it sent by mail.

DEAR MR. MYERS: We have discovered some serious termite damage in our home that will cost about $4,000 to fix. Will our homeowners insurance reimburse us for the cost of the repairs?

ANSWER: Probably not. The typical policy pays only for “sudden and accidental” problems. Termites work very slowly, so their damage usually isn’t covered.

Ironically, though, your policy probably will pay for any “collateral damage” that the wood-eating vermin might cause.

For example, if termites or other pests decide to dine on a ceiling beam and the roof subsequently collapses, you would have to pay to replace the beam, but your insurance would likely cover the cost of fixing the roof or rebuilding buckled walls.

DEAR MR. MYERS: We recently looked at a vacation home in the Southern California community of Rancho Santa Margarita, and were amused at its nearby intersection — Antonio Parkway and Banderas Avenue. Are the streets named after actor Antonio Banderas, or is it just a coincidence that the two streets intersect?

ANSWER: It’s just a coincidence. The community of Rancho Santa Margarita was started more than three decades ago, when popular actor Antonio Banderas was probably still in diapers.

Others have noticed the unusually named intersection too — enough to make it one of the five most “funniest intersections” in America, according to a list put together some years ago by homeowners and auto-insurance giant State Farm Insurance Co.

The others include Grinn Drive and Barret Road in West Chester, Ohio; and that hard-to-maneuver spot in Harahan, La., where Hickory and Dickory avenues run into Dock Street.

My favorite intersection, though, is still the spot where Ho Road crosses Hum Road —in the appropriately named town of Carefree, Ariz.

DEAR MR. MYERS: You have recently answered some questions about living trusts. Forming a trust sounds like a good idea to me. But what would happen if I create a trust and then later decide that I want to change the beneficiaries who would inherit my property?

ANSWER: Actually, it’s often easier to change the beneficiaries listed in a living trust than it is to change those who are listed in a traditional will.

Trusts are typically more flexible than wills, in part because you have complete control as the trustee and thus don’t have to hire a lawyer every time you want to make a change. You can easily put a newly purchased house or other property into the trust, take an asset out or quickly change the heirs you’d like to receive your home or other possessions after you die.

David W. Myers’ column is distributed by Cowles Syndicate Inc.

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