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Escrow Waivers: Ready to Opt-out of an Escrow Account?

Real Estate SOS

2 min read

Jun 17

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If you have a mortgage, you likely have an escrow account set up and controlled by your lender to pay your property taxes and insurance premiums. Each month, you contribute money to the escrow account along with your mortgage payment. When your property tax and homeowner insurance bills are due, your lender uses the money in the escrow account to pay them. ๐Ÿ“…โœจ


We used to believe escrow accounts were mandatory, but theyโ€™re not! While certain loan programs or lenders do require escrow accounts as a condition of the loan, it's not always the case. Generally, an escrow account will be required if you're putting down less than 20% on a home and FHA and USDA loans also mandate escrow accounts.


But you can request an ๐ž๐ฌ๐œ๐ซ๐จ๐ฐ ๐ฐ๐š๐ข๐ฏ๐ž๐ซ. An escrow waivers allows borrowers to opt out of escrow even when putting less than 20% down. This waiver allows homeowners to manage their own property tax and insurance payments.


Letโ€™s explore the benefits:


๐ˆ๐ง๐ญ๐ž๐ซ๐ž๐ฌ๐ญ ๐„๐š๐ซ๐ง๐ข๐ง๐ ๐ฌ ๐Ÿ’ต

Able to save your money in a high-yield savings account until itโ€™s time to pay your property tax and insurance.


๐‹๐จ๐ฐ๐ž๐ซ ๐…๐ž๐ž๐ฌ๐Ÿ’ฐ

Without escrow, you have fewer upfront closing costs when purchasing a home because you donโ€™t need escrow reserves.


๐…๐ฅ๐ž๐ฑ๐ข๐›๐ข๐ฅ๐ข๐ญ๐ฒ ๐š๐ง๐ ๐‚๐จ๐ง๐ญ๐ซ๐จ๐ฅ ๐Ÿ”„

Manage your own payments, giving you more control over your finances and when and how the tax and insurance payments are made.


Forgoing an escrow account can be beneficial for flexibility but risky if you are not financially disciplined. A year goes by quickly when large bills are due annually. ๐Ÿคฃ๐Ÿ˜‚


Mortgage lenders do not all have the same guidelines for waiving escrow. To learn if you are eligible for a waiver, request a copy of your lenderโ€™s policy on waiving escrow. Depending on your state, lenders may charge points, a fee or higher interest for not having an escrow account.



๐๐ž๐ซ๐ฌ๐จ๐ง๐š๐ฅ ๐„๐ฑ๐ฉ๐ž๐ซ๐ข๐ž๐ง๐œ๐ž

A few years ago we had an issue with a lender who failed to pay our homeowner's insurance, even though we had a fully funded escrow account. It was a big hassle to correct the issue, and we even lost our homeowner's insurance for a few days before we realized the problem. So, even with an escrow account, always confirm that your lender has made the payments on time.


Currently, we have an escrow account for our investment property but a not for our primary residence. This arrangement works well for us.


Hope this helps you make a choice that works for you!



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