What does FHA require lenders to escrow for under a borrower's monthly payments?

The correct answer is justified by the requirements set forth by the Federal Housing Administration (FHA) regarding escrow accounts for borrowers. Under FHA guidelines, lenders are mandated to collect a portion of annual property taxes and homeowners' insurance premiums monthly from the borrower. This is done to ensure that the borrower has sufficient funds available to pay these necessary expenditures when they come due.

Specifically, the FHA requires that lenders escrow 1/12 of the annual property taxes and homeowners' insurance, which equates to one month’s worth of these expenses included in the monthly mortgage payment. This practice helps to protect both the borrower and the lender by ensuring that funds are consistently set aside for these obligations, thereby preventing potential lapses in coverage or tax payments that could lead to significant penalties or loss of property.

This requirement serves the purpose of fostering financial responsibility and stability in homeownership while minimizing risk for lenders who participate in FHA-insured loans. By clearly defining the escrow requirements, the FHA promotes a more sustainable borrowing process for consumers.