An escrow waiver lets you pay property taxes and homeowners insurance directly instead of through your monthly mortgage payment. To qualify you typically need at least 20% equity in your home. The lender may charge a fee for waiving escrow. You must keep proof of on-time tax and insurance payments.
Eligibility for an Escrow Waiver
Lenders typically require at least 20% equity (80% loan-to-value) to waive escrow. Some lenders require 30% equity. You must have a good payment history. FHA loans require escrow for the life of the loan. VA loans allow escrow waivers. Conventional loans generally allow waivers once you have sufficient equity.
Pros and Cons of Waiving Escrow
Pros: lower monthly mortgage payment, you control the money until taxes and insurance are due, you can earn interest on the funds, and you avoid escrow shortages. Cons: you must budget for large annual payments, risk of late payment penalties if you forget, the lender may charge a fee (often $250-$500), and you need discipline to save the money.