Can I Keep a Homeowner's Insurance Payment out of Escrow?

Mortgage lenders usually require borrowers to use escrow accounts.
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Since mortgage lenders require homeowners to carry insurance coverage on their homes, establishing an escrow account for homeowner’s insurance and property tax payments helps protect the lender’s investment. Unless you put 20 percent or more down on a home when you buy it, the lender will require you to pay into an escrow account. However, the more equity you have in the home from the start, the more willing your lender may be to waive the escrow requirement.

Step 1

Make a down payment of 20 percent or more when you purchase the home. Although waiving the escrow requirement allows you the choice of paying for the homeowner’s insurance on your own, the lender may charge you an escrow waiver fee.

Step 2

Fill out a mortgage escrow waiver form. This will allow you to pay the homeowner's insurance on the home you are financing directly rather than putting the money into an escrow account for your lender to pay. Even if your lender gives you the option of waiving escrow, it's still going to cost you. As a rule, lenders charge one-quarter of a point, or 0.25 percent of the loan amount, to waive escrow.

Step 3

Pay the insurance company the first year’s premium in full before you close on the loan. Your lender may have specific requirements such as the minimum amount of insurance coverage you must carry on the home. After that, you will have to budget for the annual cost of homeowner’s insurance.

Step 4

Divide the total cost of the premium by 12 to arrive at the amount you will have to save each month to make the payment when the annual renewal premium comes due. Spreading it out is better than having the cost creep up on you all at once. If the amount of your insurance premium increases, you need to increase the amount you put aside for homeowner’s insurance each month to cover the cost. In addition, you will have to pay the difference for the premium that is currently due.

Step 5

Continue to make the premium payments on time whenever they fall due. Otherwise, you will incur late penalties or your homeowner's policy may lapse. A chief advantage of establishing an escrow account is that the lender is responsible for any expenses paid out of the account. As long as you are not more than 30 days late on your mortgage payment, the bank must foot the penalties if it pays the homeowner’s insurance premium late.

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