How to Get an Escrow Waiver on a Conventional Loan Purchase

The Quick Read: You usually can on a conventional purchase, but only when the lender’s own policy allows it. Fannie Mae and Freddie Mac permit waivers, so the investor is not the obstacle. Your down payment, credit profile, and reserves are what the lender weighs. A purchase with mortgage insurance generally cannot get a full waiver, because the insurance escrow stays.

What Does an Escrow Waiver Actually Change?

An escrow waiver changes who collects and pays your tax and insurance bills. It does not change whether you owe them. With escrow, the servicer adds a slice of each bill to your monthly payment and pays the bills when they come due. Without it, you save the money and pay them directly.

That difference is bigger than it sounds. The CFPB notes that without escrow you plan and pay these large expenses yourself. It also warns that unpaid property taxes can bring fines, penalties, or a tax lien, and possibly foreclosure. If you stop paying, the lender may add the amounts to your loan balance, set up an escrow account, or buy force-placed insurance, which is typically more expensive.

A waiver also does not save money by itself. Your monthly payment looks smaller, but the bills still exist. Many lenders also attach a fee or pricing adjustment to a waiver. It varies by lender, so ask for it in writing.

Who Decides: The Three Layers of Rules

Three layers decide whether you get a waiver. Law comes first, then the investor, then the lender. Any one of them can say no.

Layer 1: the law. The lender first checks whether your loan is a higher-priced mortgage loan, or HPML. That is a first-lien loan on a principal home priced above a federal threshold. On an HPML, escrow is generally required. The CFPB’s HPML escrow compliance guide says a required escrow cannot be cancelled before the fifth year after closing unless the mortgage is terminated. Applicable state law may also require escrow.

Layer 2: the investor. Under the Fannie Mae Selling Guide, a lender may waive escrow on a first mortgage unless the law requires it. The standard escrow clause stays in the loan documents. The lender must also have a written waiver policy. Freddie Mac’s Bulletin 2019-17 says it does not require escrow except for monthly borrower-paid mortgage insurance and where the law requires it. It also expects a written policy that weighs your ability to pay taxes, insurance, and other charges when due.

Layer 3: the lender. Each lender sets its own criteria, and it can be tougher than the investor. In our experience placing files across wholesale programs, the levers are credit profile, down payment, reserves, debt ratios, occupancy, and property type. The agencies publish no minimum credit score, LTV, or reserve figure for a waiver. Any such number is lender policy, and it differs from one lender to the next.

Why 20% Down Doesn’t Automatically Earn a Waiver

Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Twenty percent down is the common starting point, not a rule. Both agencies say the lender’s waiver policy cannot rest on LTV alone. Freddie Mac’s Guide Section 8201.1 says the policy must also consider whether you can handle the lump-sum payments of taxes, insurance, and other charges.

So a borrower with 20% down and thin savings can be told no. A borrower with a larger cushion and steady income may be told yes. The lender is asking one question: will this person have the cash when the tax bill arrives?

Here is the catch for smaller down payments. Your conventional purchase can go up to 97% LTV (3% down) for a first-time buyer on a one-unit principal residence with a fixed rate, and 95% (5% down) otherwise, subject to lender guidelines. Mortgage insurance is required above 80% LTV. Neither agency lets the lender waive escrow for the premium when it is paid monthly. That is why a purchase with under 20% down generally cannot get a full waiver. Taxes and insurance may still be waivable under lender policy, but expect the mortgage insurance piece to stay escrowed.

What Lenders Look At

Expect the lender to weigh these factors together. No single one decides it.

Freddie Mac “encourages” sellers to require escrow as a best practice on several loan types. The list includes first-time homebuyer loans, Home Possible and HomeOne loans, two- to four-unit properties, manufactured homes, second homes, investment properties, and borrowers with under six months of reserves. These are encouragements, not prohibitions. The lender decides.

That has a practical meaning for first-time buyers. Even at 5% or 3% down, where the mortgage insurance escrow already limits you, a lender may decline a waiver on the rest. Don’t count on one. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

Where the General Rule Breaks

Several situations limit or remove the waiver option. Know them before you build a budget around skipping escrow.

• Higher-priced mortgage loans. Escrow is generally required for at least five years. Your preference does not override it.
• Monthly borrower-paid mortgage insurance. That premium stays escrowed. Taxes and insurance may still be waivable under lender policy.
• Condos, co-ops, and PUDs. Fannie Mae does not require an escrow deposit for property or flood insurance on an individual unit when the project carries a blanket policy bought by the association. Property taxes may still be escrowed.
• Flood zones. The lender may still require flood insurance, and under its own policy may escrow for it.
• Refinances. This article covers purchases. Fannie Mae bars waivers on certain refinance transactions, and Freddie Mac singles out refinances where the old loan’s taxes were past due.
• Other loan types. FHA, VA, and USDA loans follow different escrow rules. Ask the lender rather than assuming.
• State law. Applicable law may require escrow. Ask your loan officer whether any state rule applies to your purchase.

The small-creditor exemption in the federal rule has limits, and it does not help a loan that is sold to Fannie Mae or Freddie Mac. Treat the HPML requirement as firm.

How to Request a Waiver at Purchase, Step by Step

Raise it early. A waiver affects pricing and your cash to close, so it should be priced and disclosed up front.

1. Tell your loan officer at application. Say you want to compare escrow and no escrow. Ask whether the lender offers a waiver on your loan type.

2. Ask for the criteria in writing. Lenders keep a written waiver policy. Ask what credit, down payment, and reserve factors it uses, and whether the loan is likely to be an HPML.

3. Ask about cost. Some lenders charge a fee or adjust pricing for a waiver. Ask for both versions, with and without escrow, so you can compare the total terms.

4. Document your reserves. Bank statements showing savings after closing help show you can handle lump sums.

5. Check your Loan Estimate. The waiver should be reflected in the loan terms and in the escrow lines of your disclosures. Confirm the escrow section matches what you asked for.

6. Review the Closing Disclosure. Before you sign, confirm that the waived items are not collected at closing, and that mortgage insurance escrow, if any, is shown.

7. Save the paperwork. The lender keeps the basis for the waiver decision and the disclosures in its file. Keep your own copy too.

If the lender says no, ask why. Then ask what would change the answer. A larger down payment, more documented reserves, or a different lender policy can change the outcome. You can also ask about a waiver again after you have built payment history, though that is a different process on an existing loan.

Cash to Close and Monthly Budget: What Changes

Skipping escrow lowers two things up front. Your monthly payment is smaller because taxes and insurance are no longer folded in. Your closing cash is also lower, because the initial escrow deposit for the waived items goes away.

Neither saving is free money. You still owe the full annual bills, and you now need to set cash aside for them. A lender fee or pricing adjustment for the waiver can also offset some of the closing-cost savings, depending on the lender.

Think of it as a trade. Escrow spreads the bills across twelve payments, and the amounts adjust as taxes and insurance change. A waiver gives you the cash flow in between, but it asks for discipline.

Should You Waive? A Decision Checklist

A waiver tends to fit when you can say yes to these:

• You have savings beyond your down payment and closing costs.
• You already budget well for large annual bills.
• Your income is steady enough to fund a separate account each month.
• You compared the cost of the waiver against the benefit.

Escrow tends to fit when:

• Your reserves are thin after closing.
• A missed bill would strain you.
• You want one predictable payment.
• You would rather not manage deadlines for taxes and insurance.

The CFPB suggests considering a voluntary escrow account even when the lender does not require one. For many first-time buyers, that is sound advice. Honestly, it is a toss-up for a disciplined saver with a large cushion. For a stretched budget, escrow is the safer call.

Managing Taxes and Insurance Yourself

If you get the waiver, build a system before closing.

• Open a separate savings account and move a fixed amount in each month.
• Calendar every due date for taxes and insurance renewal.
• Expect changes. Taxes and insurance can rise, so revisit the amount each year.
• Keep paying the policy on time. A lapse can trigger force-placed insurance, which is typically more expensive.

Tax treatment of property taxes can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

What Happens If You Fall Behind Later

A waiver is not permanent. The standard escrow provision stays in your loan documents, so the investor can enforce it in appropriate circumstances. If you stop paying taxes or insurance, the lender can add the amounts to your balance, set up escrow, or buy force-placed coverage. On the servicing side, a waiver may also be revoked if a payment deferral or modification applies.

That is the real risk of a waiver: the safety net can come back on terms you didn’t choose.

Key Terms Defined

Escrow account: An account the servicer uses to collect part of your taxes and insurance each month and pay those bills for you.

Escrow waiver: The lender’s agreement to let you pay taxes and insurance yourself instead of through escrow.

HPML (higher-priced mortgage loan): A first-lien loan on a principal home priced above a federal threshold, which generally must carry escrow for at least five years.

LTV (loan-to-value): Your loan amount divided by the home’s value. A 95% LTV means 5% down. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

Mortgage insurance: Coverage the borrower pays above 80% LTV. It can be cancelled at 80% of the original value on request and ends automatically at 78%.

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

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Our look at conventional loan programs is a good starting point. All program details 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

2. CFPB HPML Escrow Compliance Guide

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

4. Freddie Mac Guide Bulletin 2019-17

5. Freddie Mac Guide Section 8201.1