Escrow Account Waiver Mortgage Guidelines On Conventional Loans

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This BLOG On Escrow Account Waiver Mortgage Guidelines On Conventional Loans Was PUBLISHED On April 22nd, 2019

Escrow waivers for conventional mortgages:

  • As the spring mortgage market heats up, Gustan Cho Associates are receiving more questions regarding ESCROWS
  • Many clients like having mortgage escrows
  • Some do not want their money tied up in an escrow

In this blog, we will detail what it means to have an mortgage escrow, when you must have an escrow account, and when you may get an escrow waiver.

What Are Escrow Accounts Required By Lenders

What is an Mortgage Escrow?

When you own a home, you will be responsible for paying your property taxes and homeowners insurance. Whether you have an escrow account or not, you are required to pay these home-related expenses.

  • The easiest way to think of an escrow account is; a separate account where your funds are held to pay property taxes and homeowners insurance when they are due next
  • This account will have funds added to it each month as you make your monthly mortgage payment
  • Each mortgage payment will hold 1/12 of your annual property taxes and 1/12 of your annual homeowner’s insurance premium
  • As there are 12 months in the year, next time these bills are due, they are paid directly from your escrow account
  • It is important to understand that the funds held in an escrow account are your funds

If you sell or refinance your home, the money in your escrow account will be refunded to you within 30 days of closing. Same is true if you pay your mortgage off in full.

Are Escrow Accounts Mandatory?

When is an escrow mandatory?

  • All borrowers are required to have an escrow account when utilizing an FHA, VA, or USDA mortgage
  • Any government-backed mortgage requires an escrow account
  • Any conventional mortgage putting down less than 5% will also be required to have an escrow account
  • An escrow account is put in place to protect the lender from you defaulting on your property taxes or falling behind on your mortgage insurance premiums
  • Many lenders charge an escrow waiver fee for conventional mortgages
  • That fee can be built into the rate or a separate fee by itself

In the past, you needed to put down 20% on a conventional mortgage before you are eligible for an escrow waiver. We are excited to roll out escrow waivers for clients with a 640-credit score or higher with just a 5% down payment. That’s right, we are now offering escrow waivers for conventional mortgages with a 95% loan to value!!

Escrow Account

High LTV With No Escrow Required

What are some advantages for 95% LTV without escrow?

We have all been following the news and seeing how the stock market is on the rise.

  • Many of our clients wish to invest their money versus entering those funds into an escrow account
  • It is important to understand the risks of investing, but this can be a great tool to create passive income

If you choose to waive an escrow account, it is important to budget carefully. Failing to pay your property taxes can result in losing your home. Failing to pay your homeowner’s insurance premium will force the lender to add “forced placed insurance” to your mortgage. Force-placed insurance is incredibly expensive and has terrible coverage. For more details please see the CFBP’s Advise On Forced Place Insurance. This is not a path you want to go down.

Layered Risk In Having Escrows

If you do set up an escrow, it is the lender’s responsibility to pay your property taxes and insurance in a timely fashion.

  • When you do have an escrow account, paying these house-related expenses become automatic
  • These bills become out of sight out of mind and you are guaranteed not to miss a payment
  • If you choose to waive an escrow account, you are 100% responsible to make sure these expenses are paid on time

If you do not, you can end up with a tax lien on the property or forced placed homeowner’s insurance stated above.

Importance Of Escrow 

Why is this such a big deal?

Allowing an escrow waiver with just 5% down payment is a huge deal.

  • The reason being, this can slash upfront costs associated with the loan
  • Example; On a $300,000 mortgage, a borrower waiving escrows could save $3,000 (depending on property taxes)
  • The borrower would not be required to impound their funds into this escrow account at closing but keep the funds in their bank
  • With a credit score of 640 or higher and automated approvals through Freddie Mac and Fannie Mae, borrowers are no longer required to put down 20% to waive escrows
  • It is important for consumers to have options when it comes to mortgage financing

We are excited to roll out this program especially for cash-short first-time home buyers. Allowing clients to keep more money in their pocket is important. For any questions regarding escrow accounts please reach out to Mike Gracz on 630-659-7644 or text us for faster response. Or email us mgracz@gustancho.com. We are direct mortgage lenders without LENDER OVERLAYS who also have access to unique mortgage programs such as this 95% LTV escrow waiver program. We are available 7 days a week for any questions and are ready to get working for you. Please reach out today.

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