Q: Do I have to pay my taxes and insurance through an escrow account?

It depends on your loan program and equity. FHA/VA Loans: Yes. You are required to have an escrow account for both property taxes and homeowners' insurance. Conventional Loans: If you have less than 20% equity (less than a 20% down payment), an escrow account is usually required. Once you build enough equity, you can request a waiver to pay these bills yourself.

Q: Why is there a fee to waive escrow accounts?

It comes down to risk and baseline pricing . Since the vast majority of loans include an escrow account, lender rate sheets are priced assuming that structure is in place. When you request to waive escrows, you are moving away from the "standard" pricing model. To compensate for the increased risk of handling your own taxes, the loan is repriced, typically triggering a fee of 0.25 points at closing.

Question 1

Are the fees on my Loan Estimate guaranteed not to change?

Accepted Answer

It depends on the fee category. Lender Fees (such as points or the appraisal cost) and Transfer Taxes are legally "locked" and cannot increase without a change in circumstances. However, third-party fees (like Title Insurance) can increase by up to 10% if you use the lender’s recommended provider, or by any amount if you choose your own provider.

Question 2

How should I compare lender quotes?

Accepted Answer

When comparing Loan Estimates, you need to look past the bottom-line "Cash to Close" number and break the costs down into apples-to-apples buckets:

Isolate Lender Fees: Compare only the Origination Charges (Points, Underwriting, Processing). These are the primary fees the lender controls.
Standardize the Rest: Understand that Title Fees, Transfer Taxes, and Escrows are third-party costs that will be the same on settlement day, regardless of which lender you choose.
Spot the Difference: If one lender's "Cash to Close" is significantly lower but their Rate/Points are the same, check the third-party estimates. Did they quote fewer months of Escrows or omit Situational Fees?. If the monthly payment looks lower, verify they didn't underestimate the property tax or monthly home insurance.

(For a full list of red flags, see the How Lenders Cheat the Estimate section above.)

Question 3

How are property tax escrows determined?

Accepted Answer

It depends on two factors: your specific closing date and whether your state pays taxes "Forward" or in "Arrears."

Maryland (Paid Forward): Taxes are paid in advance. Since the seller has likely already paid for the time you will own the home, you must reimburse them. We typically collect 9 months of taxes upfront (or 14 months for investment properties) to handle the next bill.
VA & DC (Paid in Arrears): Taxes are paid for the previous period. The seller usually owes you a credit for the time they lived there. Because of this, we generally only need to collect 5 months upfront.

Question 4

Can you waive the Lenders Fees?

Accepted Answer

No, but there is a workaround. To adhere to Fair Lending laws, our standard fees must remain the same for every borrower. We cannot simply "delete" a fee. However, we can often issue a Lender Closing Cost Credit to offset those costs. This achieves the same goal: lowering your cash-to-close while keeping the loan file compliant.

Question 5

Do I have to pay my taxes and insurance through an escrow account?

Accepted Answer

It depends on your loan program and equity.

FHA/VA Loans: Yes. You are required to have an escrow account for both property taxes and homeowners' insurance.
Conventional Loans: If you have less than 20% equity (less than a 20% down payment), an escrow account is usually required. Once you build enough equity, you can request a waiver to pay these bills yourself.

Question 6

Why is there a fee to waive escrow accounts?

Accepted Answer

It comes down to risk and baseline pricing. Since the vast majority of loans include an escrow account, lender rate sheets are priced assuming that structure is in place. When you request to waive escrows, you are moving away from the "standard" pricing model. To compensate for the increased risk of handling your own taxes, the loan is repriced, typically triggering a fee of 0.25 points at closing.

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