Is buying a home becoming more affordable? See the new "Salary you need to buy a median-priced home in the top 50 metro areas"

Is buying a home becoming more affordable? See the new "Salary you need to buy a median-priced home in the top 50 metro areas"

Can I separate tax and insurance payments from my mortgage payment?

Can I separate tax and insurance payments from my mortgage payment?

It may or may not be possible for you to take on the responsibility for making regular property tax and insurance payments on your home.

Separating tax and homeowner's insurance payments for your mortgage's principal and interest payment is most commonly done at the time the mortgage is made; this "escrow waiver" by the lender allows you to take care of your property taxes and insurance payments. In many cases, the lender will often charge a fee, usually a quarter-to-half percentage point of the loan amount for allowing you to do this.

Escrow waivers can take place on "private" mortgages (those made for a lender's own portfolio), for those sold to Fannie Mae or Freddie Mac and on VA-backed mortgages. That is to say that these entities don't mandate or require the escrowing of theses funds, but many lenders install their own requirements in order to better manage risk.  However, FHA-backed loans do mandate that the lender escrow funds for the payment of taxes and insurances.

From Fannie Mae's Selling Guide (sel013117):

Escrow Waivers

Fannie Mae advocates the establishment of an escrow account for the payment of taxes and insurance, particularly for borrowers with blemished credit histories or first-time homeowners.

Unless required by law, lenders may waive escrow account requirements for an individual first mortgage, provided the standard escrow provision remains in the mortgage loan legal documents.

Lenders cannot waive an escrow account for certain refinance transactions or for the payment of premiums for borrower-purchased mortgage insurance (if applicable). When the requirement for an escrow account is waived, the lender must retain Fannie Mae’s right to enforce the requirement in appropriate circumstances.

Lenders must have a written policy governing the circumstances under which escrow accounts may be waived. When a lender permits escrow waivers, subject to the mortgage documents and applicable law, the lender’s written policies must provide that the waiver not be based solely on the LTV ratio of a loan, but also on whether the borrower has the financial ability to handle the lump sum payments of taxes, insurance, and other items described above.

Depending upon your lender's policies, it might still be possible for you to separate the taxes from your mortgage payment. Fannie Mae requires that the lender evaluate your ability to make these regular lump sum payments and does not allow for a waiver to be granted solely on the basis of your loan's current loan-to-value ratio. Also, this arrangement isn't allowed for certain kinds of mortgage refinance transactions.

You should contact your servicer to see if this can be done for your loan. To find that, check your statement for a customer service number or website address.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Submitting your question...

Question received! Check back later to see if your
question gets published.

Q: How many times can I use my VA home loan?
OCT 31, 2019

There are three ways you can restore your VA eligibility so that you can take advantage of it more than once.

Read More
Q: Can my lender ask me why I'm buying a specific home?
NOV 06, 2018

Lenders can ask you why you are buying a specific home because there are different lending rules for different types of properties.

Read More
Q: Does the VA allow "asset depletion" mortgages?
SEP 20, 2018

Can you use private-sector retirement income and savings to help qualify for a VA-backed mortgage?

Read More