How to request an escrow waiver

Quick insights

• To request an escrow waiver, contact your lender and confirm you meet the requirements such as a strong credit score, significant down payment and low loan-to-value ratio.
• If you’re eligible, you’ll need to submit a formal written request to your lender asking for the escrow waiver, following their specific process and guidelines.
• Consider the pros, such as increased control over your payments, along with the cons like the responsibility of managing large lump-sum payments.

When purchasing a home, some homebuyers may assume that they need to have an escrow account to manage property tax and insurance payments. However, that’s not always the case. If you’re diligent about managing finances, you might wonder if an escrow account for property tax and insurance payments is necessary. This article will walk through key aspects of escrow waivers and requesting one for your mortgage.

What is an escrow waiver

An escrow waiver is an agreement between a homeowner and their lender that eliminates the need for an escrow account. The homeowner is responsible for paying property taxes and insurance premiums directly. One of the key reasons homeowners may request an escrow waiver is to gain more control over their finances and cash flow. Otherwise, these expenses are managed by the lender.

Not everyone qualifies for an escrow waiver; eligibility depends on the lender and state regulations. Loan providers typically have specific requirements, such as a strong payment history and a low loan-to-value (LTV) ratio. While an escrow waiver can provide flexibility, it also comes with risks such as the responsibility of making large lump-sum payments on time.

What are the requirements for a waiver of escrow?

Lenders have specific criteria that homeowners must meet to qualify for an escrow waiver. While requirements vary, common factors include:

• Significant down payment: Many lenders require at least 20% down to consider an escrow waiver.
• Strong credit score: A high credit score demonstrates financial responsibility and reduces lender risk.
• Timely mortgage payments: A history of on-time payments shows reliability in handling financial obligations.
• LTV ratio: The LTV ratio may need to be below a certain threshold—80% or lower, for instance.
• Property location: Homes in high-risk areas, such as flood zones, may not qualify for an escrow waiver.
• Escrow waiver fee: Some lenders charge a fee for waiving escrow, which may be a one-time payment or an increased interest rate.
• Payment responsibility: Homeowners may have to sign a formal agreement to pay property taxes and insurance directly, which are often due in lump sums.

Keep in mind that meeting these requirements does not guarantee approval, as lenders evaluate escrow waiver requests on a case-by-case basis. Each lender has its own policies, so it’s important to check with them for precise criteria.

How to request an escrow waiver

You may be able to request an escrow waiver before or after you buy your home. In many cases, contacting your lender about your eligibility is an important first step.

Here are the typical steps you may follow when requesting an escrow waiver:

1. Check your eligibility: Review your mortgage agreement to determine if an escrow waiver is allowed. Contact your lender to confirm eligibility. Most loan providers require a loan-to-value ratio of 80% or lower and a history of on-time payments. Plus, state regulations may impact eligibility.
2. Understand potential fees: Some lenders may charge an escrow waiver fee, either a one-time charge or a slight increase in your interest rate.
3. Gather required documents: Proof of on-time payments (typically a 12-month history), homeowners insurance policy showing active coverage and property tax records confirming payment history.
4. Submit a formal request: Request an escrow waiver form from your lender. Complete the form and submit it with the required documents and ensure all information is accurate to avoid delays in processing.
5. Await the lender’s decision: The lender will review your request, which may take a few weeks. If approved, you’ll be responsible for managing tax and insurance payments directly. If denied, ask for the reason and whether you can reapply in the future.

Since lender policies vary, it’s best to confirm the exact steps and requirements with your specific mortgage provider.

In summary

An escrow waiver can help provide more control over your payments but comes with additional duties. Eligibility depends on state regulations, meeting certain lender criteria, and the process involves submitting a formal request before or after you buy a home.

If you’re considering waiving your escrow account, it’s important to discuss the option with your lender to understand their specific requirements and any potential fees or implications. Additionally, ensure that you are comfortable managing the responsibility of making these payments on your own.

An escrow waiver puts the responsibility of managing and paying insurance and property taxes directly. This can offer more control over finances and cash flow. However, an escrow waiver may cost a fee, and not paying property taxes or insurance on time can have negative consequences. The pros and cons are worth weighing before submitting a formal request.