topic Re: Removing escrow from monthly mortgage payment? in Mortgage Loans

Removing escrow from monthly mortgage payment?

Anonymous — Sat, 20 Mar 2021 07:01:37 GMT

For anyone that has successfully done this, can you describe the process? I'm sure it's lender-specific in many ways, but from what I understand if certain criteria is met it's something that can be achieved.

My current monthly payment is roughly 55% to P+I, with 45% going toward escrow. If I were to remove the escrow and handle that on my own it would then drop my monthly payment quite significantly. My thought process is that accomplishing this would then lower my DTI a good chunk (my mortgage payment is the only part of my DTI numerator) which would be a favorable look for me as I plan to head into a second mortgage in the next 12-18 months.

Any thoughts or advice on this process would be appreciated.

Re: Removing escrow from monthly mortgage payment?

Horseshoez — Sat, 20 Mar 2021 12:26:09 GMT

@Anonymous wrote:
For anyone that has successfully done this, can you describe the process? I'm sure it's lender-specific in many ways, but from what I understand if certain criteria is met it's something that can be achieved.

My current monthly payment is roughly 55% to P+I, with 45% going toward escrow. If I were to remove the escrow and handle that on my own it would then drop my monthly payment quite significantly. My thought process is that accomplishing this would then lower my DTI a good chunk (my mortgage payment is the only part of my DTI numerator) which would be a favorable look for me as I plan to head into a second mortgage in the next 12-18 months.

Any thoughts or advice on this process would be appreciated.

Wow, that's a heck of a high percentage for your tax excrow; can't say I've ever seen one that high. We only converted one property from an attached escrow to self paid taxes, however, we did that when we refinanced. I'm not sure if there is a formal process to drop an escrow with an existing mortgage.

Re: Removing escrow from monthly mortgage payment?

Anonymous — Sat, 20 Mar 2021 14:41:52 GMT

I live in NY, so taxes are a bit high here which definitely inflates that part a bit... but my loan is also over 30% paid down at this point and with throwing extra principal payments toward it throughout I've chipped away at the P+I portion of the payment.

I've sent a secure message to my mortgage lender on this subject, but haven't gotten a response back yet (4 days). They're pretty poor with communication, horrific on the phone so I do everything in writing with them. Just wondering from those that have done this or know about it what I possibly may be able to expect.

Re: Removing escrow from monthly mortgage payment?

brk1971 — Sat, 20 Mar 2021 14:49:26 GMT

It may be lender specific. I'm closing next Wednesday on my loan with Navy Federal, and P+I is right at 60% of my total payment. I asked the same question of my loan processor.

She said their policy allows it "without requesting an exception" if two things: borrower qualifies (score and income) and LTV < 80%. In my case I'm putting 5% down and have a LTV of 91% so need to wait until the additional equity is there.

Re: Removing escrow from monthly mortgage payment?

4sallypat — Sat, 20 Mar 2021 15:01:36 GMT

I have done this once before on a house that had PMI (5% down) and the insurance portion was more than the property tax & home insurance combined.

When the home equity reached 25%, the lender I contacted dropped the PMI.

That saved a $250 / month PMI insurance that made it easy to live!

Re: Removing escrow from monthly mortgage payment?

brk1971 — Sat, 20 Mar 2021 15:13:46 GMT

I think dropping PMI is both a good idea and another (but related) topic from the OP's question. The question related to the taxes & insurance in escrow. Dropping PMI happens automatically (or earlier by request if the value improves), but when it drops it ceases to exist on that loan. The taxes and hazard insurance will always be a thing however.

In my case, 40% of my payment is taxes and hazard insurance (there's no PMI with Navy Federal), so I'd love to drop those out of escrow.

Re: Removing escrow from monthly mortgage payment?

Anonymous — Sun, 21 Mar 2021 05:31:41 GMT

Yeah I don't have PMI so that isn't a thing for me. I'm specifically interested in just pulling the escrow out of my monthly mortgage payment and taking care of that on my own.

Re: Removing escrow from monthly mortgage payment?

bobvette — Sun, 21 Mar 2021 13:44:27 GMT

We recently purchased a beach house in November of 2020, in July of 2020 we refinanced our primary home and did not escrow, however, when we applied for our new mortgage on the second home, they required that I send in my tax bill and homeowners insurance statement and factored that into my DTI, just as if I was escrowing it. Just any FYI.

Re: Removing escrow from monthly mortgage payment?

Anonymous — Mon, 22 Mar 2021 02:58:07 GMT

Interesting and good to know. From what I've read most just assume that those things are lumped in with the monthly mortgage payment. I wonder if they'd have any way of knowing otherwise outside of just asking?

Re: Removing escrow from monthly mortgage payment?

bobvette — Mon, 22 Mar 2021 11:33:40 GMT

Yes, you will be required to send a copy of your current mortgage statement which will show you do not escrow.

Re: Removing escrow from monthly mortgage payment?

Anonymous — Mon, 22 Mar 2021 18:54:24 GMT

I dropped escrow a couple years into my last houses mortgage. I just sent a request and they did it for free(your mortgage might need to be seasoned a couple years). As far as credit report were concerned and other loans were concerned, your mortgage payment is your general housing payment, so not having that in it helped keep dti lower, I never got a second mortgage though. Also think twice about doing that, it was a huge pain paying seperately, had to use a seperate account to keep organized, divide payments, set up auto transfers into the account, and used bill payment to pay quartly taxes and insurance. When I purchased new house, I kept escrow, as it kept rate lower, and its less of a pain.

Re: Removing escrow from monthly mortgage payment?

iced — Mon, 22 Mar 2021 21:01:19 GMT

@Horseshoez wrote:
@Anonymous wrote:
For anyone that has successfully done this, can you describe the process? I'm sure it's lender-specific in many ways, but from what I understand if certain criteria is met it's something that can be achieved.

My current monthly payment is roughly 55% to P+I, with 45% going toward escrow. If I were to remove the escrow and handle that on my own it would then drop my monthly payment quite significantly. My thought process is that accomplishing this would then lower my DTI a good chunk (my mortgage payment is the only part of my DTI numerator) which would be a favorable look for me as I plan to head into a second mortgage in the next 12-18 months.

Any thoughts or advice on this process would be appreciated.
Wow, that's a heck of a high percentage for your tax excrow; can't say I've ever seen one that high. We only converted one property from an attached escrow to self paid taxes, however, we did that when we refinanced. I'm not sure if there is a formal process to drop an escrow with an existing mortgage.

It's not really that high if someone did a refi and owns a significant portion of a home in a high property tax area.

However, BBS note it will NOT help your DTI. Lenders look at everything that goes in -- we had both HOAs counted against our DTI, so I'm pretty sure they'll count your property taxes, whether they're rolled in or not.

Re: Removing escrow from monthly mortgage payment?

iced — Mon, 22 Mar 2021 21:06:57 GMT

@Anonymous wrote:
Interesting and good to know. From what I've read most just assume that those things are lumped in with the monthly mortgage payment. I wonder if they'd have any way of knowing otherwise outside of just asking?

To continue my last post, yes they will know. I had to submit bank statements, W2s, paystubs, brokerage statements, and many other things as part of my application, and they go through them with a comb looking for monthly obligations. If you have multiple checking accounts and you omit reporting one, they technically won't know but if they find out AND that account has material debts to be factored in it will jeopardize your application.

It's one thing to underreport your income and assets for a mortgage application; it's another entirely to underreport your debts. Plus, they'll be looking at your current property's tax information (which is public record), so they know what you are paying for property tax. If you don't show them where it came from, they're going to know something's up.

Re: Removing escrow from monthly mortgage payment?

Anonymous — Tue, 23 Mar 2021 17:53:54 GMT

@iced wrote:
To continue my last post, yes they will know. I had to submit bank statements, W2s, paystubs, brokerage statements, and many other things as part of my application, and they go through them with a comb looking for monthly obligations. If you have multiple checking accounts and you omit reporting one, they technically won't know but if they find out AND that account has material debts to be factored in it will jeopardize your application.

Ah, thanks for this tidbit of info. I have a couple accounts that I hadn't planned on including, mainly because they dn't have much activity and I simply have too many = hassle. Yet I do make my car payment out of one of them from time to time for activity sakes. So it seems as if I will have to divulge every single account I have even if it seems unimportant to me? lol

Re: Removing escrow from monthly mortgage payment?

iced — Tue, 23 Mar 2021 18:09:04 GMT

@Anonymous wrote:
Ah, thanks for this tidbit of info. I have a couple accounts that I hadn't planned on including, mainly because they dn't have much activity and I simply have too many = hassle. Yet I do make my car payment out of one of them from time to time for activity sakes. So it seems as if I will have to divulge every single account I have even if it seems unimportant to me? lol

Not quite that black and white. You don't have to divulge every asset or account, but you do need to divulge every obligatory debt (taxes and things that generally show up on credit reports). If your credit report shows you owe $35,000 on a car note and your shared statements don't show any car payments, the manual UW will likely ask where that car payment is coming out of. They know you owe that money.

Property taxes are in a similar boat. They see the public records on your current property and they know all properties have property tax, so if they can't trace where it's being paid out, they're going to ask to see it. If it's an occasional payment, it won't matter unless it was occasionally recently. For our mortgage, we had to show 2-3 months statements showing the payments coming out for mortgage (including tax), HOA, and at the time a car payment. We offered to just pay off the car to not have to deal with it, but the lender said it would be easier to just show the payments and pay it off after closing, so we went that route.

If you have accounts with money that you don't want to disclose, you don't have to but they won't be factored in to your assets. We intentionally withheld several accounts because we didn't want to divulge everything, but we did divulge enough to satisfy the requirements the lender had in terms of showing funds for a down payment and reserves. Divulging everything would effectively have been overkill.

Re: Removing escrow from monthly mortgage payment?

Anonymous — Tue, 23 Mar 2021 18:17:52 GMT

For me, there was a new water heater that I financed through my utility company that didn't show on my credit report that I didn't disclose during my last refinance(they just append finance amount to utility bill monthly). They saw credit inquiry, I had to provide a LOE where I explained the truth, attached a utility bill, and they factored it into my DTI after underwriting (I was at 31% dti anyway, so not much of an issue), but it did probably delay my closing as it most likely had to go back to underwriter or something simular. If it didn't show up as an inquiry(I completely forgot I had it), not sure they would have ever found it, but its borderline not honest if you knew about it, even though the lender prefills the liabilities section of the application with data on credit report without your input.

Re: Removing escrow from monthly mortgage payment?

Anonymous — Tue, 23 Mar 2021 18:40:16 GMT

Good info above from everyone, thanks.

@iced

What about if you pre-pay your taxes/insurance for a length of time (say 1 year) with a large lump payment? If you don't owe anything payment-wise for a solid length of time like that, would it still be included in DTI calculations when entering into a second mortgage?

Re: Removing escrow from monthly mortgage payment?

brk1971 — Tue, 23 Mar 2021 18:53:04 GMT

@Anonymous wrote:
Good info above from everyone, thanks.

@iced

What about if you pre-pay your taxes/insurance for a length of time (say 1 year) with a large lump payment? If you don't owe anything payment-wise for a solid length of time like that, would it still be included in DTI calculations when entering into a second mortgage?

I did that with my hazard insurance several years ago on a house purchase - simply didn't know I wasn't supposed to pay the invoice when I received it. Was no problem, and it lowered my closing costs, but NOT my monthly escrow payments.

As for the disclose every account discussion - I have five checking accounts and six savings accounts. My paycheck stubs clearly show my income goes to two different checking accounts. I pay things from the second account (and the first / primary account is the lender I'm using). My processor removed every account except theirs (after asking me if it was ok for her to remove everything that didn't matter to lower the paperwork threshold). This meant they did not see payments to several of my credit report showing debts. Never a question (though I assumed I'd get one, and had the statements ready for the other accounts). It may well be that they determined that it didn't matter due to my DTI (which ends up at about 14/28%). YEMV

Re: Removing escrow from monthly mortgage payment?

iced — Tue, 23 Mar 2021 19:14:37 GMT

@Anonymous wrote:
Good info above from everyone, thanks.

@iced

What about if you pre-pay your taxes/insurance for a length of time (say 1 year) with a large lump payment? If you don't owe anything payment-wise for a solid length of time like that, would it still be included in DTI calculations when entering into a second mortgage?

I still think they'll ask about property taxes, if you're keeping your current home. Taxes are a pretty standard expense on a home (P&I, taxes, HOA are the basics) and they will pull up your current property if you aren't doing a contingency to sell. If they know your address, they know what you ~~paid~~ owed in taxes last year.

I can't speak for every UW, but if you don't include it, they'll either ask to see it, or they'll just divide the annual tax into monthly chunks and use that to factor your DTI.

If you think about how many loans an UW looks at, and that every one one of them with homes on it have property tax, they're not going to think you just don't owe taxes. They're just as certain as death, after all.

Re: Removing escrow from monthly mortgage payment?

Anonymous — Tue, 23 Mar 2021 21:21:18 GMT

Right I get that, I'm not suggesting to try and manipulate them in any way... I'm just trying to determine if there's a way to lower DTI. If one were to pay their taxes way in advance I would think that would have to positively impact DTI at some point... whether that's 1 year, 3, 5, I have no idea.