Can You Waive Escrow on a Conventional Loan and What Will It Cost?

The Quick Read: Often yes, but the lender decides. Neither Fannie Mae nor Freddie Mac requires escrow on every conventional loan, so a lender with a written waiver policy can let you pay taxes and homeowners insurance yourself. The cost is usually not a bill for the waiver itself. Some lenders charge a one-time fee or adjust pricing, and you take on the job of paying large tax and insurance bills on time. A loan with monthly mortgage insurance will usually keep escrow.

Escrow is a holding account run by your servicer. A slice of each monthly payment goes in, and the servicer pays your property tax and insurance bills from it. Waiving means you pay those bills directly. That changes when you pay, not what you pay.

This article walks through who can waive, what it costs, and how to decide. Lendmire is a mortgage broker, not a lender. The mechanics below come from the conventional files it arranges through wholesale lenders, plus the agency rules where noted.

What Does Waiving Escrow Actually Change?

Waiving changes your monthly payment and your calendar. It does not change the total cost of owning the home.

With escrow, your payment covers principal, interest, and a monthly share of taxes and insurance. Without it, your payment covers principal and interest, plus monthly mortgage insurance if you have it. The tax and insurance bills still exist. They now arrive as lump sums, often once or twice a year.

Think of it as a budgeting choice. You hold the cash instead of the servicer. If you are disciplined, that is fine. If one big bill would sink your month, it is a risk.

One more point: escrow is not a fee. It holds your own money for your own bills. The CFPB’s consumer guidance says taxes and premiums can change each year, so an escrowed payment changes with them. Without escrow, you plan for those swings yourself.

Can You Waive Escrow on a Conventional Loan?

Yes, in many cases. The rules leave room, and the lender fills it with its own written policy.

The Fannie Mae Selling Guide lets lenders waive escrow on an individual first mortgage unless the law requires it. The standard escrow clause must stay in the loan documents. Fannie Mae also expects a written waiver policy that cannot rest on loan-to-value alone. LTV is your loan balance divided by the home’s value. The lender must also weigh whether you can handle lump-sum tax and insurance payments.

Freddie Mac’s Guide Bulletin 2019-17 says the same thing in different words. Sellers that sell loans without escrow need a written waiver policy that considers your ability to pay taxes and insurance when due.

Here is the catch. The agencies set no numeric LTV cutoff for new loans. Many lenders use a convention of 80% LTV or lower, but that is the lender’s choice, not an agency rule. Hitting 80% does not earn you a waiver automatically. Another lender may say no to the same file.

What the lender looks at

Across the wholesale programs Lendmire places files with, the review usually covers:

• LTV. Set by the appraised value, or the purchase price if lower.
• Credit profile. Stronger credit helps.
• Reserves. Cash left after closing shows you can absorb a big bill.
• Debt-to-income ratio. Taxes and insurance generally count in your ratios whether or not they are escrowed. Confirm that with your loan officer.
• Property tax history. Freddie Mac names refinances with past-due taxes as a case where escrow is the better practice.

The appraisal matters only through value. No agency rule gives escrow its own appraisal test.

When Escrow Is Not Optional

Some situations take the decision away from you. Know these before you plan around a waiver.

Monthly mortgage insurance. Mortgage insurance is required above 80% LTV. Both agencies carve out borrower-paid monthly mortgage insurance from waivers. The Fannie Mae Servicing Guide says the servicer may not waive escrow for those premiums when they are paid monthly. A buyer using 95% or 97% leverage should expect escrow. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

That ties to timing. Mortgage insurance can be cancelled on request at 80% of the original value, with good payment history, no subordinate liens, and no decline in value. The servicer must end it automatically at 78%. Once it is gone, a waiver conversation may open up, subject to the servicer’s policy.

Higher-priced mortgage loans. Federal rules require escrow on first-lien higher-priced loans for a principal home. Regulation Z section 1026.35 lets the account be cancelled only when the debt ends, or on your request no earlier than five years after closing. Limited exemptions exist for certain small lenders. Most borrowers on conforming loans with solid credit will not trip this rule, but your Loan Estimate will show if escrow is required.

Certain refinances. Fannie Mae bars escrow waivers on certain refinance transactions. Which refinances are affected depends on the loan’s terms and the investor’s guidelines, so confirm the specifics with your lender.

Flood insurance. The agency sources do not set a flood-escrow rule for conventional loans. In practice, lender and investor overlays often require flood premiums to be escrowed. Treat that as a lender question.

Condos and co-ops. Fannie Mae does not require an escrow deposit for property or flood premiums on a unit in a project covered by a blanket policy bought by the association. Taxes are a separate question.

Special assessments. If an assessment on the property is unpaid at closing, your payment must include accruals so the annual amount is built up by the due date.

Who Is Less Likely to Get a Waiver?

Freddie Mac’s bulletin lists situations where escrow is the recommended practice. These are best practices, not hard rules, but lenders tend to follow them:

• First-time homebuyers
• Home Possible and HomeOne loans
• Two- to four-unit properties
• Manufactured homes
• Second homes and investment properties
• Borrowers with less than six months of reserves

Occupancy and leverage matter on the program side too. A one-unit principal residence can reach 97% LTV for a first-time buyer on a fixed rate, or 95% otherwise. A second home tops out at 90%. Those leverage levels usually bring mortgage insurance, which brings escrow.

If you are buying your first home with a small down payment, plan on escrow. It is also a decent forcing mechanism while you learn what a home costs.

What Will a Waiver Cost?

There is no standard waiver fee. No agency publishes one. Lenders handle it in one of three ways.

Lendmire does not quote fee amounts in an article, and the number varies by lender and file. So does the form that applies. Ask two lenders for side-by-side estimates and compare the full terms, not only the line item.

Now the part most people miss. Waiving can save you cash at closing. An escrowed loan funds an initial escrow deposit when you close. A waiver avoids that deposit. You may still prepay the first year of homeowners insurance, so the savings are not total.

The other side of the ledger is the time value of money. You hold the funds longer, and you might earn interest on them. Weigh that against any fee or pricing hit. A waiver charge that is larger than what your savings could earn is a bad trade. Many borrowers who run this comparison find the benefit is mostly about preference and cash flow, not profit.

How Do You Request a Waiver?

1. Tell your loan officer up front that you want to waive. Escrow is usually elected at application and appears on the Loan Estimate and Closing Disclosure.

2. The lender checks its written waiver policy.

3. Underwriting reviews LTV, credit, reserves, and debt ratios.

4. If approved, the standard escrow clause stays in your loan documents. Your Closing Disclosure shows no escrow account.

After closing: You ask the servicer. The rules get stricter. Under the Fannie Mae Servicing Guide, a servicer must deny the request if any of these apply:

• A prior loan modification
• A prior waiver where payments were not made on time
• Any delinquency in the prior 12 months
• A 60-plus-day delinquency in the prior 24 months
• A balance at or above 80% of the original appraised value

Freddie Mac’s servicing rules are somewhat different. A servicer may approve a request if the loan is current and the unpaid balance is under 80% of the original appraised value, or the loan has not been 30-plus days delinquent in the prior six months. No minimum time since origination applies. Which set of rules governs your loan depends on who owns it.

What Happens If You Miss a Payment?

Escrow can come back. Freddie Mac says any waiver must be in writing and must let the servicer resume collecting escrow if an item goes unpaid. A servicer may start collecting previously waived escrow by written notice, without agency approval.

Unpaid property taxes can lead to fines, a tax lien, or foreclosure. If your homeowners insurance lapses, the servicer can buy force-placed insurance, which is typically more expensive than coverage you buy yourself. Neither one is a good surprise.

Should You Waive Escrow?

It depends on your cash habits, not only on eligibility. Here is how it tends to sort out.

A practical setup if you waive: open a separate savings account, move a monthly amount into it, and put the due dates on your calendar. Treat it as your own escrow.

The CFPB suggests that even if your lender does not require an escrow account, you consider asking for one voluntarily. That is sound advice for many first-time owners. A waiver is a convenience, not a prize.

A short note on other loan types, since people ask. FHA loans generally require escrow, and USDA guaranteed loans generally do when the lender can offer it. VA has no universal requirement. Confirm the current rule with the program’s own handbook.

Key Terms Defined

Escrow account: A servicer-held account that collects part of each payment and pays your property tax and insurance bills.

Escrow waiver: A lender’s written decision to let you pay taxes and insurance directly instead of through escrow.

LTV (loan-to-value): Your loan balance divided by the home’s value, shown as a percentage.

Higher-priced mortgage loan: A loan priced above federal thresholds, which must carry escrow for at least five years.

Force-placed insurance: Coverage a servicer buys for you when yours lapses, usually at higher cost.

Reserves: Cash you still have after closing, often counted in months of payments.

Next Step

If you are buying a home and want to see whether conventional loan programs fit your file, Lendmire can help you compare the options and what each one asks of the file. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB: What is an escrow or impound account?

2. Fannie Mae Selling Guide B2-1.5-04, Escrow Accounts

3. Freddie Mac Guide Bulletin 2019-17

4. Fannie Mae Servicing Guide B-1-01

5. CFPB Regulation Z section 1026.35