When you take out a mortgage, most lenders set up an escrow account, which is a savings account used to cover your estimated property taxes and homeowners insurance each year. Most government-backed loans require an escrow account, but if you have a conventional mortgage, your lender can decide whether it’s necessary.
If you would prefer to pay your property taxes and homeowners insurance yourself, you can request an escrow waiver. Understanding how an escrow waiver works will help you determine whether it’s the best choice for your situation.
An escrow waiver removes the lender’s responsibility to maintain an escrow account and pay property taxes and insurance on your behalf. Instead, you’ll cover these expenses on your own, making separate annual payments for property taxes and homeowners insurance when they’re due.
Getting your escrow waived will lower your monthly mortgage payments, but it won’t actually save you any money. Instead, you’ll be responsible for saving money on your own so you aren’t short on funds when your property taxes and home insurance are due.
An escrow waiver isn’t available to all borrowers and loan types, and you must meet the lender’s requirements to waive your escrow. For example, FHA and USDA loans always require an escrow account.
Whether you qualify for an escrow waiver with origination depends on the following factors.
If you wish to remove an escrow account after it’s been established, you need to meet these qualifications:
Keep in mind, there are also several state-specific restrictions. It’s best to consult a loan expert in your area.
If you qualify for an escrow waiver, you may need to pay a fee to account for the additional risk your lender is taking on. Most lenders will charge this fee as a small percentage of the total loan amount or as a slightly higher interest rate.
Whether you qualify for an escrow waiver will largely depend on your loan type. For example, FHA and USDA loans don’t offer waivers, but VA loans do. However, since VA loans don’t come with any down payment requirements, it’ll be difficult to qualify for an escrow waiver if you don’t have sufficient equity in your home.
If you have a conventional loan, it’s up to your loan to determine whether you qualify for an escrow waiver. Since these loans are conforming loans, they must also meet requirements set out by Fannie Mae and Freddie Mac. The typical requirements to remove an existing escrow account are:
While an escrow waiver may sound enticing, there are drawbacks homeowners should consider first. Here are the biggest pros and cons of waiving escrow.
Most borrowers choose to waive their escrow accounts so they’ll have more control over their finances. Since you’re saving the funds yourself, you’ll have the ability to earn interest on anything you save. In comparison, you won’t earn any interest on the money in your escrow account.
Waiving your escrow requirements will also cause your monthly mortgage payments to decrease. And if you apply for an escrow waiver when buying a home, it can help you reduce your closing costs.
An escrow waiver could be the right choice for some borrowers. But you’ll be putting yourself in a difficult financial situation if you waive escrow and aren’t prepared to pay your property taxes and homeowners insurance annually.
If you’re considering an escrow waiver, it’s a good idea to review your property taxes first. And you should honestly consider whether you’re up to the task of managing the payments on your own. Most borrowers will find that it’s easier to let their lender manage their taxes and insurance for them.
An escrow waiver allows you to pay your property taxes and homeowners insurance on your own. When you save the funds yourself, you have the opportunity to earn interest on any money you save.
But there are significant consequences if you miss a payment, so it isn’t an option for all borrowers.
Get matched with a lender that will work for your financial situation.
LMB Mortgage Services, Inc., (dba Quicken Loans), is not acting as a lender or broker. The information provided by you to Quicken Loans is not an application for a mortgage loan, nor is it used to pre-qualify you with any lender. If you are contacted by a lender or broker advertising within our network, your quoted rate may be higher depending on your property location, credit score, loan-to-value ratio, debt-to-income ratio, and/or other factors. Quicken Loans does not offer its matching services in all states. This loan may not be available for all credit types, and not all service providers in the Quicken Loans network offer this or other products with interest-only options. The information that we provide is from companies which Quicken Loans and its partners may receive compensation. This compensation may influence the selection, appearance, and order of appearance on this site. The information provided by Quicken Loans does not include all financial services companies or all of their available product and service offerings. Article content appears via license from original author or content owner, including Rocket Mortgage.
Note: Actions on this website are recorded for quality assurance or training purposes. Input of data constitutes consent.
Quicken Loans is a registered trademark of Rocket Mortgage, LLC, used under license by LMB Mortgage Services, Inc.
LMB Mortgage Services, Inc. | NMLS #167283
4859 W Slauson Ave #405 Los Angeles, CA 90056
