When you get a mortgage, your lender may set up an escrow account to cover property taxes and insurance — rolling those costs into your monthly mortgage payment. But what if you’d rather manage those expenses yourself?
That’s where an escrow waiver comes in.
This article breaks down what escrow is, when you can waive it, and the pros and cons of managing your own tax and insurance payments. If you’re weighing the benefits of a traditional escrow account versus taking control of your own finances, this guide will help you decide.
What Is an Escrow Account?
An escrow account is a special account held by your mortgage lender to pay for recurring homeownership costs like:
-
Property taxes
-
Homeowners insurance
-
Flood insurance (if applicable)
-
Sometimes HOA dues (in certain loan structures)
You make one monthly mortgage payment, and the lender allocates part of that payment to your escrow account. When tax and insurance bills are due, the lender pays them on your behalf — ensuring everything stays current.
What Is an Escrow Waiver?
An escrow waiver allows you to opt out of using an escrow account. If approved, you’ll pay property taxes and insurance directly to the providers instead of including them in your mortgage payment.
You’re fully responsible for saving and paying those bills when they’re due. The lender no longer tracks or manages these obligations.
Who Qualifies for an Escrow Waiver?
Escrow waivers are not guaranteed. Each lender sets their own criteria, but common requirements include:
-
At least 20% equity (or a 20% down payment for purchases)
-
Strong credit score (often 700+)
-
On-time payment history
-
Loan type restrictions — some government loans like FHA and VA typically require escrow
Even if you meet the basic criteria, your lender may still deny the request based on internal policy or market conditions.
Is There a Fee to Waive Escrow?
Yes — many lenders charge a 0.25% to 0.375% fee of the loan amount to waive escrow. This may be paid upfront or added to your closing costs.
This fee helps offset the additional risk lenders take on by allowing borrowers to manage taxes and insurance independently. Some lenders may also require a signed waiver form acknowledging this responsibility.
Example: Escrow Waiver Cost Comparison
Let’s say you’re taking out a $400,000 mortgage and your lender charges a 0.25% escrow waiver fee.
-
Waiver Fee = $400,000 × 0.0025 = $1,000
-
Annual taxes: $5,200
-
Home insurance: $1,600
If you waive escrow, you’ll pay $6,800 per year in two large installments — likely $3,400 every six months. That means you’ll need to budget and save proactively, which may not be ideal for first-time buyers or borrowers without stable income.
Also consider that the $1,000 fee may be better used elsewhere — such as buying down your interest rate or funding home repairs.
Escrow Account vs. Escrow Waiver: Pros and Cons
Here’s a side-by-side comparison of the pros and cons to help you decide which option is better for your situation.
| Escrow Account | Escrow Waiver | |
|---|---|---|
| Convenience | Bills paid automatically by lender | You must remember due dates and pay manually |
| Budgeting | Predictable monthly payments | May need to budget for lump-sum payments |
| Qualification | Required for most loans < 20% down | Must have 20%+ equity and good credit |
| Flexibility | No control over timing of payments | Control over when and how you pay |
| Fees | No waiver fee | Waiver may cost 0.25%–0.375% of loan amount |
Should You Waive Your Escrow Account?
Ask yourself the following:
-
Can I reliably set aside thousands of dollars for taxes and insurance?
-
Am I comfortable tracking due dates and paying large annual bills?
-
Do I value payment flexibility more than convenience?
-
Does the escrow waiver fee make financial sense in my situation?
If you answer yes to all, an escrow waiver could be worth it. But if you’d rather have everything bundled into one payment — and avoid the risk of late payments or lapsed insurance — sticking with escrow is probably the better path.
Some borrowers choose to waive escrow not for control, but for cash flow timing. If you’re self-employed or receive irregular income, being able to pay taxes when funds are available — rather than monthly — might offer flexibility.
But don’t underestimate the discipline required. Escrow accounts act like forced savings tools, and removing that safety net increases the risk of lapsed insurance or tax penalties, especially if you hit unexpected expenses.
Special Considerations for Escrow Waivers
-
Refinancing? You may be able to waive escrow as part of a refinance if you have enough equity — but expect the same credit and fee requirements.
-
Buying a new home? If you’re putting 20% or more down, ask your lender up front about waiving escrow and whether fees apply.
-
Property taxes vary — If you live in a high-tax area or your taxes fluctuate year to year, escrow might help smooth out those changes.
What If You’re Denied an Escrow Waiver?
Not every borrower who qualifies on paper will be approved. If your request for an escrow waiver is denied:
-
Ask your lender for a clear explanation (credit score, LTV, payment history)
-
Check if you can reapply after 6–12 months of consistent on-time payments
-
Consider if you can negotiate the waiver fee or request a partial waiver
If you’re refinancing, bring it up early in the process — some lenders are more flexible during rate negotiation or loan shopping.
Frequently Asked Questions (FAQs)
Can I waive escrow on an FHA or VA loan?
Usually not. FHA and VA loans require escrow accounts for taxes and insurance to be maintained throughout the loan term.
What happens if I miss a tax payment after waiving escrow?
You’re solely responsible. Missing a tax or insurance payment can result in penalties, lapses in coverage, or even forced placement of expensive lender insurance.
Is there any benefit to keeping escrow?
Yes — escrow provides peace of mind, budget consistency, and automatic bill management. It’s a good choice for homeowners who prefer simplicity.
Can I set up escrow again later if I change my mind?
It depends on your lender, but most allow you to reinstate escrow. Some may require a new agreement or account setup process.
Is an escrow waiver worth it?
It depends. An escrow waiver offers flexibility but adds responsibility. It’s worth it if you prefer control and are disciplined with large bills — and if the waiver fee is manageable.
Can I remove escrow later after closing?
Yes, some lenders allow you to request an escrow waiver after closing, but you’ll typically need at least 20% equity and a strong payment history. Not all lenders approve post-closing waivers, so check their policy first.
Final Thoughts
An escrow waiver gives you more financial control — but also more responsibility. While many homeowners like the idea of managing their own taxes and insurance, the reality is that escrow provides predictable, automated peace of mind.
If you’re debating whether to waive escrow during a refinance or new loan, make sure the math works in your favor — and that you’re prepared to stay on top of large lump-sum bills.
Related Posts
Managing Your Escrow Account: A Homeowner’s Guide to Staying in Control
An escrow account is a common part of the mortgage experience — but most homeowners don’t realize they can (and should) be managing
What Credit Score Do You Need to Buy a House?
When you’re preparing to buy a home, one of the first questions to ask is: what credit score do you need to buy
Understanding Escrows: What They Are, How They Protect You, and Their Role in Homeownership
When you’re buying a home or making monthly mortgage payments, you’ll often deal with something called an escrow account. But what is an
