Escrow Waivers: What Buyers Need to Know

Property taxes and homeowner's insurance are easy to overlook when you're focused on your down payment and closing costs.

Those expenses may be included in your monthly payment through an escrow account, or in some cases, you may be allowed to waive escrows and pay them yourself.

That can reduce the amount of money needed at closing, and I understand why buyers like that option. I do that myself.

But waiving escrows does not mean those costs go away.

You still have to pay the first year's homeowner's insurance premium at closing. And when the property tax bill comes due, you need to have the money set aside.

There are also rules around when escrows can and cannot be waived.

For example, some lenders may allow escrow waivers on conventional loans with as little as 5% down, but FHA loans always require escrow accounts. And if the property is in a special flood zone, flood insurance premiums must be escrowed under federal flood insurance rules.

Another thing to watch for: some lenders charge a one-time fee to waive escrows. If that applies, you need to decide whether having control over your own tax and insurance money is worth that cost.

And one more important point: even if you waive escrows, your lender still has to count property taxes and insurance when qualifying you. They're still part of your total housing payment.

So if you choose to waive escrows, have a plan. Set aside money so you're not surprised when the insurance renewal or property tax bill arrives. Make sure you can comfortably afford your home after closing.

And remember - it's always okay to ask. We're here to help you get home.