When Can I Remove Escrow From My Mortgage?

A mortgage escrow account serves as a dedicated holding fund managed by your mortgage servicer to cover specific property-related expenses. Its primary purpose is to ensure that property taxes and homeowners insurance premiums are paid on time, protecting both your investment and the lender’s interest in the property. Each month, a portion of your mortgage payment is allocated to this account, accumulating funds until these larger bills become due. This system helps homeowners budget for significant expenses that might otherwise be challenging to pay in a lump sum.

Eligibility to Remove Escrow

Removing an escrow account from your mortgage involves meeting specific criteria, which can vary based on your loan type and lender policies. For conventional loans, homeowners often become eligible once their loan-to-value (LTV) ratio drops below a certain threshold, commonly 80%. This means your outstanding mortgage balance is 80% or less of your home’s current market value.

A consistent history of on-time mortgage payments is another common requirement. Many lenders require no late payments (30 days or more past due) for a specified period, often 12 to 24 consecutive months. Additionally, the loan itself may need to be at least one year old. Lenders may also check for a positive escrow balance and ensure no upcoming tax or insurance disbursements are scheduled within a short timeframe, like 45 days.

Different loan types have distinct eligibility rules. Federal Housing Administration (FHA) loans generally require an escrow account for the life of the loan, primarily due to their more lenient qualification standards and the associated mortgage insurance premiums (MIPs). To remove escrow from an FHA loan, refinancing into a conventional loan is typically necessary, provided you meet the conventional loan’s eligibility criteria, including sufficient equity. While the Department of Veterans Affairs (VA) does not mandate escrow accounts, most VA lenders require them to ensure property taxes and insurance are paid. Escrow waiver requirements for VA loans are often comparable to conventional loans, but borrowers need enough equity, commonly at least 5%, and a good payment history.

Lenders ultimately retain discretion even if general criteria are met, and some may charge an escrow waiver fee, often a small percentage of the loan amount, for the increased risk they assume. Loans that have undergone modifications or have previous instances of force-placed insurance may be ineligible for escrow removal. Flood insurance requirements can also affect eligibility, often making escrow removal difficult or impossible for that specific payment.

Steps to Request Escrow Removal

Once you have confirmed your eligibility based on your loan type and financial standing, the next step involves formally requesting the removal of your escrow account from your mortgage servicer. The process begins by contacting your mortgage servicer directly, as each company may have its own specific procedures and forms. This initial contact can often be made through their customer service line, secure online message center, or by sending a written request.

During this inquiry, you will need to ask about their specific application process for escrow removal. The servicer may require you to complete a specific form, such as an escrow waiver or cancellation request. You might also need to provide documentation, such as proof of your current homeowners insurance policy and records of recent property tax payments, to demonstrate your ability to manage these expenses.

After submitting your formal request and any required documentation, the mortgage servicer will review your application. This review process can take some time, typically ranging from a few business days to over a month, depending on the servicer’s internal timelines. It is important to continue making your regular mortgage payments, including the escrow portion, until you receive official notification that your escrow account has been removed. If any tax or insurance bills are due within 60 days of your request, you should plan to pay those directly to avoid penalties, as the removal process may not be completed in time.

Managing Home-Related Payments Independently

After successfully removing your escrow account, the responsibility for paying property taxes and homeowners insurance shifts entirely to you. This requires establishing a robust system to ensure timely payments and avoid potential financial repercussions. Homeowners must actively track the due dates for both property tax assessments and insurance premiums, which are typically annual or semi-annual.

It is advisable to set aside funds regularly, perhaps in a separate savings account, to accumulate the necessary amounts for these large, infrequent payments. Property tax bills are issued by local tax authorities and can vary based on assessed property values and local millage rates, so reviewing these bills carefully upon receipt is important. Homeowners insurance policies require continuous renewal and payment to maintain coverage, protecting your home against perils like fire, theft, or natural disasters.

Missing these payments can lead to severe consequences. Unpaid property taxes can result in penalties, interest charges, and ultimately, a tax lien being placed on your property. In extreme cases, repeated non-payment can lead to the property being sold at a tax sale or even foreclosure, as tax liens generally take priority over mortgage liens. A lapse in homeowners insurance coverage means your property is unprotected, leaving you financially responsible for any damages or liabilities. Your mortgage lender will likely be notified of an insurance lapse and may purchase expensive “force-placed” insurance, which offers less coverage than a standard policy and increases your monthly costs significantly.