Can I Remove My Home Insurance From Escrow?

Homeowners often find their home insurance premiums paid through an escrow account as part of their monthly mortgage payment. While this arrangement offers convenience by bundling property-related expenses, many homeowners consider taking over direct payment of their home insurance. The ability to do so depends on various factors, including lender policies and the specifics of your loan.

Understanding Lender Requirements

An escrow account typically holds funds from your monthly mortgage payment to cover property taxes and homeowners insurance premiums. This ensures timely payment of these annual expenses, protecting the lender’s investment. Lenders often require an escrow account, especially for conventional loans with a down payment less than 20%, or for government-backed loans like FHA and USDA loans. FHA loans, for instance, generally require an escrow account for the entire life of the loan.

Lenders establish specific criteria for homeowners to be eligible for removing home insurance from escrow, often referred to as an escrow waiver. A common requirement for conventional loans is a loan-to-value (LTV) ratio of 80% or less, meaning you have at least 20% equity in your home. Your payment history is also significant; lenders typically require no recent late mortgage payments, often looking for a clean record over the past 6 to 12 months. Some lenders may also require the loan to be at least one year old.

Certain loan types, such as FHA and USDA loans, typically do not permit the removal of an escrow account due to their inherent risk profile. While the Department of Veterans Affairs (VA) itself does not mandate escrow for VA loans, individual lenders frequently require it to ensure taxes and insurance are paid. Additionally, your escrow account must generally have a positive balance, meaning the lender has not had to cover payments on your behalf due to insufficient funds. To determine eligibility, review original loan documents, recent mortgage statements, or contact your loan servicer.

Steps for Removal

Once eligible to remove home insurance from escrow, the next step involves initiating the request. Begin by contacting your mortgage servicer, typically through their customer service department or a dedicated escrow services line. They will guide you on the specific procedure and provide any necessary forms, often referred to as an “escrow cancellation” request.

To support your request, you will likely need to provide specific documentation. This commonly includes a written request for escrow removal, proof of your current homeowners insurance policy, and evidence of the policy’s current premium. Your lender may also require proof of an adequate positive balance in your escrow account and confirmation that no insurance payments are scheduled within the next 30 to 45 days. Ensure all submitted documents clearly show your policy details and that the coverage meets your lender’s minimum requirements.

After submitting your request and all required documentation, the lender will review your application. The timeline for review and approval can vary, but a response is generally expected within a few weeks to a month. If approved, the lender will adjust your escrow account, typically refunding any surplus funds that were collected for insurance premiums. They will also notify your insurance provider that they will no longer be handling premium payments, transferring that responsibility directly to you.

Managing Your Policy Independently

Upon successful removal of your home insurance from escrow, you assume direct responsibility for timely premium payments. Diligent financial management is required to ensure continuous coverage and avoid policy lapses. Establishing reminders for upcoming payment due dates, whether through digital calendars or automated alerts from your bank or insurance company, is a practical step to prevent accidental oversights.

Failing to make timely premium payments can lead to severe consequences, including the cancellation of your homeowners insurance policy. If your policy lapses, your mortgage lender will likely be notified and may purchase “force-placed” insurance on your behalf. This lender-placed coverage is typically much more expensive and provides less comprehensive coverage, primarily protecting the lender’s interest in the property. The cost of force-placed insurance will then be added to your mortgage payments, potentially leading to a significant increase.

While your home insurance payments are no longer part of your escrow, other items like property taxes might still be. This change will be reflected in your future mortgage statements and annual escrow analyses. Your annual escrow analysis will review the funds collected versus disbursed for any remaining escrowed items and adjust your monthly mortgage payment accordingly. If you receive a refund for unused premiums from your previous escrow account, deposit these funds back into your mortgage account’s escrow to prevent a future shortage and a subsequent increase in your monthly payment.