What type of fund do lenders typically require to cover taxes and insurance?

Lenders typically require an escrow fund to manage the payment of property taxes and homeowners insurance. An escrow account acts as a neutral third party holding funds until they are needed for these specific purposes. When a borrower makes their monthly mortgage payment, a portion is often allocated to this escrow account to ensure that these important expenses are covered on time, thereby protecting the lender's investment in the property. This arrangement helps both the borrower and the lender keep track of essential expenses that, if left unpaid, could lead to significant financial challenges or even foreclosure.

In contrast, cash reserves refer to savings set aside by the borrower for various unforeseen costs, while a mortgage is the loan itself to purchase the property. A bond is a type of debt investment and does not relate to the management of property-related expenses. Therefore, the escrow account is the most suitable option for ensuring the timely payment of taxes and insurance.