Rules regarding Escrow Payments: How to Opt out?

5 Replies

Hello everyone,

Again - Thanks in advance to everyone who is able to provide me with feedback/answers.

My goal is to pay for homeowners insurance/real estate taxes on my own without it being paid by a bank via monthly escrow payments. The reason for this is so my debt to income ratio can be lowered and to also provide me with more control.

So my question is how can I opt out of paying an escrow payment?

My first mortgage required me to pay in an escrow payment.(Wells Fargo via conventional mortgage)
My second mortgage is not requiring me to pay an escrow payment.(Portfolio loan with a small bank)

Are escrow requirements a requirement of the bank or is it a fannie mae/freddie mac requirement?
If I am paying an escrow payment - Am I locked in throughout the life of the mortgage?

I don't think it will help your DTI ratio because - even if the taxes and insurance aren't escrowed in your payment - a lender is still going to know you have to pay those things and take them into account.

Usually when you apply for a mortgage you fill out a Schedule of Real Estate Owned that'll ask questions like how much you owe on any existing properties, your monthly payment amount, monthly taxes, insurance, etc (like in the screenshot below).  So they'll capture that info one way or the other.

But if you just want to do it so you have more control, it can be done.  Coincidentally, I just did it this week.  In my case, I was having ongoing issues getting the lender to pay the hazard insurance on time from my escrow account.  So I decided to just take it over and pay it myself because I don't have that issue on any other property.

Different banks will have different rules for when an escrow account can be cancelled once it's already established.  In my case, these were the bank's requirements:

- The loan had to be one or more years old

- Loan to value (LTV) 80% or less

- Payments are current and no payments have been 30 days past due in the last 12 months

- The loan has not been modified through the Home Affordable Modification Program (HAMP) or other modification program where escrow is a requirement

- Member has never missed a payment on an item otherwise payable from escrow

- The bank has current evidence of the member's hazard insurance policy

- The escrow account must have a positive balance and have no escrow advances

So it can be done.  Just call up your lender and ask them what the process is. 

Originally posted by @Kyle J. :

I don't think it will help your DTI ratio because - even if the taxes and insurance aren't escrowed in your payment - a lender is still going to know you have to pay those things and take them into account.

Kyle is right, removing the escrow account will have no effect on your DTI. If your taxes and insurance are not included in your monthly mortgage payment, the annual amount for both property taxes and insurance divided by 12 will still be added to your payment to determine the PITI for each property.

If you are still interested from a control standpoint, it can be done by asking. Typically you will pay an extra 0.125 or 0.25 interest rate. I have traditional financing under these terms with the big 5.

as others stated - it wont  improve on the dti as taxes and ins are always  counted in this ratio …..most lenders  allow you to pay your own taxes and insurance  if the loan to  value ( ltv) is < 80%   and there is normally a  .25% fee  ( not rate)  adjustment for " waiving impounds …….if you are  trying to get an existing loan impound account to  stop - contact the lender / servicer for  options