Can I Close My Escrow Account and How?

An escrow account is a financial arrangement established by a mortgage lender to manage certain property-related expenses on behalf of the homeowner. This account typically holds funds for property taxes and homeowner’s insurance premiums, collected as part of your regular monthly mortgage payment. The primary purpose of this setup is to ensure these significant obligations are paid on time, protecting the lender’s interest in the property and providing convenience for the homeowner by consolidating payments.

Meeting Lender Requirements

Closing an escrow account requires meeting specific criteria set by your mortgage lender, which vary but share common elements. A common requirement is achieving a loan-to-value (LTV) ratio of 80% or less, meaning you have at least 20% equity in your home. This threshold indicates a reduced risk for the lender, potentially allowing them to waive the escrow requirement.

Lenders also look for a strong payment history, generally requiring no late payments for 12 to 24 months. This demonstrates your reliability in managing financial obligations independently. Certain loan types, including Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, mandate escrow accounts that cannot be closed. Properties in designated flood zones also require ongoing escrow for flood insurance premiums. Some lenders also require a positive escrow balance and no upcoming tax or insurance payments due within 30 to 45 days before considering closure.

Steps to Close Your Account

Once you determine you meet your lender’s eligibility criteria, the next step involves requesting closure of your escrow account. You initiate this process by contacting your loan servicer via phone, online portal, or written request. Your servicer will guide you on any required forms, such as an escrow waiver or cancellation request.

After submitting your request, the lender will review your account and confirm your eligibility based on their internal policies. This review process concludes with a notification of their decision. The time it takes for the entire process to complete can vary, ranging from a few weeks to over a month. If an insurance or tax bill is due within 45 days, the lender might process that payment before finalizing the escrow waiver.

Your Responsibilities After Closure

Upon closure of your escrow account, financial management responsibilities transfer to you. You become responsible for tracking due dates and making payments for your property taxes to the appropriate taxing authority. Property tax payments are due annually or semi-annually, and failure to pay them on time can result in penalties, liens against your property, or even foreclosure.

Similarly, you will need to manage your homeowner’s insurance premiums. This involves tracking policy renewal dates, ensuring continuous coverage, and making payments to your insurance provider. Many insurance companies offer flexible payment options, including monthly, quarterly, semi-annual, or annual payments. To effectively manage these duties, it can be beneficial to set aside funds regularly in a separate savings account for these expenses or to utilize calendar reminders to avoid missed deadlines.