Can You Waive Escrow After Closing?
Considering waiving mortgage escrow? Understand the implications and steps to independently manage your property's tax and insurance obligations.
An escrow account simplifies homeownership by collecting a portion of your annual property taxes and insurance premiums with each monthly mortgage payment. The mortgage servicer then holds these funds and pays the bills on your behalf when they become due. While this arrangement offers convenience, many homeowners wonder if they can manage these payments independently. Waiving the escrow account requirement after your mortgage has closed is often possible, but specific conditions and lender policies dictate eligibility. This shifts the responsibility of timely payments entirely to the homeowner.
Eligibility Requirements for Waiving Escrow
Waiving an escrow account after closing depends on meeting specific criteria set by your mortgage lender. Lenders typically require a loan-to-value (LTV) ratio of 80% or less, demonstrating substantial equity.
Your payment history is another important consideration. Lenders look for a consistent record of on-time mortgage payments, generally requiring no late payments for the last 12 to 24 months. A strong credit score can also improve your chances of approval. The type of loan you have significantly impacts eligibility; Federal Housing Administration (FHA) and United States Department of Agriculture (USDA) loans typically mandate escrow accounts for the life of the loan and do not allow waivers.
Conventional loans offer more flexibility for escrow waivers. Some lenders may require the loan to be at least 12 months old before a waiver request. Your escrow account must have a positive balance. If the property is in a flood zone or requires private mortgage insurance (PMI), certain payments may still need to be escrowed, even if other components are waived.
Steps to Request Escrow Waiver
Once you believe you meet the eligibility criteria, initiating the waiver process begins with contacting your mortgage servicer. You can typically reach out to their customer service department or a specialized loan servicing team to inquire about their specific escrow waiver policies and procedures. Lenders often have an official form or a written request process that you must follow to formally submit your intention to waive escrow.
When submitting your request, you will need to provide your loan number and contact details. Lenders may also require supporting documentation, such as proof of your current homeowner’s insurance policy and recent property tax statements. The lender will then review your application, a process that can take a few weeks, typically ranging from 7 to 15 business days.
Upon approval, the lender will provide written confirmation that your escrow account has been closed. This confirmation will detail how your new mortgage payment, consisting only of principal and interest, will be adjusted. Some lenders may charge a one-time escrow waiver fee. If your request is denied, the lender should provide a reason.
Managing Your Own Property Tax and Insurance Payments
After successfully waiving your escrow account, the responsibility for managing and paying your property taxes and homeowner’s insurance shifts entirely to you. Track the due dates for both your property tax installments and insurance premiums. These dates vary by jurisdiction and insurer, so creating a detailed calendar or reminder system is advisable.
Effective budgeting is essential to ensure you have sufficient funds available when these large, infrequent payments are due. Many homeowners find it helpful to set aside a portion of their income into a separate savings account each month, specifically earmarked for taxes and insurance. This prevents financial strain when the bills arrive.
You will now be responsible for making direct payments to your local tax authorities and your insurance provider. Monitor for any changes in your annual tax assessment or insurance policy costs, as these can fluctuate year to year. Maintaining active homeowner’s insurance coverage is a requirement of your mortgage loan, and your lender may periodically request proof of coverage. Keep meticulous records of all payments made.