- All
- Closing (Real Estate)
Powered by AI and the LinkedIn community
1
Save on fees
2
Control your cash flow
3
Risk of late or missed payments
4
Risk of underestimating costs
5
Qualify for a lower interest rate
Be the first to add your personal experience
6
Comply with lender requirements
7
Here’s what else to consider
When you buy a home with a mortgage, your lender may require you to set up an escrow account. This is a special account where you deposit money every month to pay for property taxes and homeowners insurance. The lender then pays these bills on your behalf when they are due. But what if your lender gives you the option to waive the escrow account and pay these bills yourself? Here are some risks and benefits of waiving an escrow account if your lender allows it.
Key takeaways from this article
-
Avoid servicer errors:
Managing your own property tax and insurance payments prevents mistakes that might occur with a third-party escicer. You'll need to stay organized, but you avoid the headache of rectifying someone else's error.
-
Direct payment discounts:
Paying your property taxes directly could qualify you for discounts, easing financial strain during closing. Just ensure that you keep track of due dates to avoid any late fees or penalties.
This summary is powered by AI and these experts
- Toya Horn Howard
- Gail Malloy Paralegal, Title Insurance Agent…
1 Save on fees
One benefit of waiving an escrow account is that you can save on fees. Some lenders charge a monthly or annual fee for managing your escrow account. This fee can vary depending on the lender, the loan type, and the amount of money in the account. By waiving the escrow account, you can avoid paying this fee and keep more money in your pocket.
Help others by sharing more (125 characters min.)
- John M Pogue Positive and Caring Financial Burden Negotiator
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
To ensure accurate handling of taxes, mortgage service companies often utilize tax management systems or tax services. However, the cost are usually passed on to the borrower instead of being absorbed by the company, potentially resulting in higher monthly mortgage payments. It's important for borrowers to be aware of these expenses and how they affect their overall financial obligations when dealing with a mortgage service company.
LikeLike
Celebrate
Support
Love
Insightful
Funny
2
2 Control your cash flow
Another benefit of waiving an escrow account is that you can control your cash flow. With an escrow account, you have to pay a fixed amount every month to cover your property taxes and homeowners insurance. This amount can change every year based on the changes in your tax rate and insurance premium. By waiving the escrow account, you can pay these bills directly when they are due. This way, you can adjust your budget accordingly and use the money for other purposes in the meantime.
Help others by sharing more (125 characters min.)
- Toya Horn Howard
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Ever since my first investment purchase I've paid my own. At first I had an escrow account. But an error caused by the mortgage company recording the wrong PIN number in their records caused them to take taxes out of my escrow for a mansion vs my 1BR condo. This overdrew my escrow account immediately and caused huge problems. It took almost a year to straighten it out. I had to research and locate the president of the servicing company. Once their inhouse counsel got involved my problem was resolved quickly. But dealing with their regular servicing team was a nightmare. Since then, I have always negotiated to pay my own taxes and insurance. Too many opportunities for servicers to screw up. Pay your own taxes & insurance.
LikeLike
Celebrate
Support
Love
Insightful
Funny
9
- Gail Malloy Paralegal, Title Insurance Agent, Entrepreneur, Westmoreland Paralegal Services
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Nice benefit to control your own money and pay taxes directly at discount. This definitely results in less upfront costs of closing.
LikeLike
Celebrate
Support
Love
Insightful
Funny
5
- John M Pogue Positive and Caring Financial Burden Negotiator
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
By diligently building an emergency fund equivalent to three months' worth of your bills, you can secure a safety net for unforeseen situations. Taking control of your escrow management enables you to direct those funds into your emergency fund, thereby boosting your liquid capital and enhancing your financial preparedness during emergencies. Strive to financial discipline to ensure you have sufficient resources for both your regular expenses and unforeseen circ*mstances.
LikeLike
Celebrate
Support
Love
Insightful
Funny
1
3 Risk of late or missed payments
One risk of waiving an escrow account is that you may be late or miss your property tax or homeowners insurance payments. These payments are usually due once or twice a year, and they can be large and unexpected. If you forget to pay them on time, you may incur penalties, interest, or liens from the tax authority or the insurance company. Worse, you may lose your home insurance coverage or face foreclosure from your lender if you default on these payments.
Help others by sharing more (125 characters min.)
- John M Pogue Positive and Caring Financial Burden Negotiator
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Based on my experience, if you are late on your taxes, most mortgage servicing companies will require mandatory escrow for the taxes. This measure is taken to mitigate the risk of tax auction and potential loss of the investment for both homeowner and investor. It's crucial to sat on top of your tax payments.
LikeLike
Celebrate
Support
Love
Insightful
Funny
4
4 Risk of underestimating costs
Another risk of waiving an escrow account is that you may underestimate the costs of your property taxes and homeowners insurance. These costs can vary depending on your location, property value, and insurance policy. They can also increase over time due to inflation, reassessment, or claims. If you waive the escrow account, you have to estimate how much money you need to save for these bills and set aside enough funds every month. If you miscalculate or fail to save enough, you may face a financial shortfall when the bills are due.
Help others by sharing more (125 characters min.)
- John M Pogue Positive and Caring Financial Burden Negotiator
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Mortgage service companies may hold an extra 2 to 3 months' worth of escrow payments, resulting in higher monthly bills. This measure provides a buffer to account for possible increase in taxes and insurance cost. However, it's important to note that in most states the funds are kept in a non-interest-bearing account, which means they won't accrue any additional earnings for you. Managing your finances prudently and maintaining a separate emergency fund can farther enhance your financial preparedness for unexpected expenses.
LikeLike
Celebrate
Support
Love
Insightful
Funny
1
5 Qualify for a lower interest rate
One possible benefit of waiving an escrow account is that you may qualify for a lower interest rate on your mortgage. Some lenders offer a discount on the interest rate if you choose to waive the escrow account and pay your property taxes and homeowners insurance yourself. This is because the lender assumes less risk and responsibility for managing your payments. However, this benefit is not guaranteed and may depend on your credit score, loan-to-value ratio, and other factors.
Help others by sharing more (125 characters min.)
6 Comply with lender requirements
One possible risk of waiving an escrow account is that you may not comply with your lender's requirements. Some lenders may not allow you to waive the escrow account at all, or they may impose certain conditions for doing so. For example, you may need to have a high credit score, a low loan-to-value ratio, or a large down payment. You may also need to pay a higher interest rate, a one-time fee, or a higher closing cost. You should check with your lender before you decide to waive the escrow account and understand the terms and consequences.
Help others by sharing more (125 characters min.)
- John M Pogue Positive and Caring Financial Burden Negotiator
(edited)
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Selecting the right mortgage lender can grant you unexpected freedoms that may prove crucial later on. For instance, the option to manage escrow yourself allows for your financial control, while the ability to defer a payment to the end of the loan term offers flexibility during emergency financial challenges. It’s essential to be mindful of these features while choosing a mortgage lender to endure they align with your specific financial objectives and provide you with the necessary financial security and convenience.
LikeLike
Celebrate
Support
Love
Insightful
Funny
1
7 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
Help others by sharing more (125 characters min.)
- John M Pogue Positive and Caring Financial Burden Negotiator
(edited)
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Mortgage service companies primarily function to service the mortgages on behalf of the investor. While borrowers may consider themselves customer of the mortgage service company, the ultimate customer is the investor who owns the mortgage. As such the mortgage service company's main objective is to manage the loan on behalf of the investor and ensure the best interest of the investor are protected. Borrowers should be aware of this dynamic and understand that the decisions made by the mortgage service company are often driven by the investor's interest.
LikeLike
Celebrate
Support
Love
Insightful
Funny
9
Closings
Closings
+ Follow
Rate this article
We created this article with the help of AI. What do you think of it?
It’s great It’s not so great
Thanks for your feedback
Your feedback is private. Like or react to bring the conversation to your network.
Tell us more
Tell us why you didn’t like this article.
If you think something in this article goes against our Professional Community Policies, please let us know.
We appreciate you letting us know. Though we’re unable to respond directly, your feedback helps us improve this experience for everyone.
If you think this goes against our Professional Community Policies, please let us know.
More articles on Closings
No more previous content
- How do you deal with closing disclosure errors that involve third-party fees or services? 5 contributions
- What are the best practices for drafting a deed of trust and a warranty deed? 4 contributions
- How do you handle HOA fees and assessments when prorating closing costs? 3 contributions
- How do you handle keys after selling a house with a smart lock? 4 contributions
- How do you evaluate the performance and quality of your closing team and process?
- How do you prioritize repair requests based on urgency and cost?
No more next content
More relevant reading
- Working with First-Time Home Buyers How do you teach first-time buyers about closing documents?
- Real Estate Negotiating What are the pros and cons of using an escrow holdback for repairs?
- Real Estate What are the most important post-closing tasks for first-time home buyers?
- Closings How do you budget for the escrow account and prepaid items at closing?