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Can I choose to pay taxes and homeowners insurance and not escrow?

Hi all,
  We have 20 percent equity in our new home.  It is a new construction, and we are refinancing the construction mortgage into permanent 30 year fixed conventional loan.
My question is, can we opt to pay our property taxes and homeowners insurance, yearly, out of pocket?

 I prefer this to dealing with escrow because escrow accounts make it more challenging to shop for a better deal on homeowner's insurance and escrow accounts always seems to need extra "padding."
  • May 12 2014 - US
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Answers (5)

Depending on the type of construction loan you have right now and depending on your credit situation will dictate whether or not you will be able to avoid waiving the escrows.  For instance if you are obtaining an FHA, VA, or USDA home loan they all require you to escrow and they cannot be waived.  Conventional loans have the ability to waive paying your escrows however as noted before by other zillow members you will most likely take an interest rate hit for doing so.
  • May 13 2014
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I'd like to add to the excellent commments below that, in addition to avoiding the .25% escrow waiver fee, mortgage servicers pay a small amount of interest to the borrower at the end of the year on the impound or escrow account balance to the and are required by law to keep the amount of "padding" to a minimum.  They will perform an yearly analysis of the account in order to keep the amount at an adequate--but not too high--amount.

  • May 13 2014
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Dan is correct. Fannie Mae has a pricing adjustment of .25% of the loan amount if a borrower wants to waive escrows and pay their own taxes and insurance. Depending on the pricing, the lender may be able to eat this fee but if you are buying down your interest rate, it is likely to be charged to you in addition to any buy-down point(s).
  • May 13 2014
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Yes, you should have no trouble paying your own taxes and insurance and not using an escrow account. However in most cases it is highly recommended to have an escrow account as it makes life easier for the home owner, as they are not stuck making single lump sum payments when taxes/ insurance are due.
  • May 13 2014
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Profile picture for danielstoj
Most lenders will allow you to pay your own property taxes and home owners insurance when you put 20% down. They usually charge a .25% "escrow waiver fee". The fee is based on the new loan amount.
  • May 12 2014
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