Escrow removal denied? Other ways to save

Having an escrow removal denied can be frustrating, especially when you're looking to save on your monthly mortgage payment. It’s completely understandable to want to keep more money in your pocket each month, and there may be other avenues you can look at to accomplish the same goal.

This article will go over the basics of an escrow account, including when it can and can’t be removed. Mainly, we’ll focus on ways you can lower your payment and save, even with an escrow account.

What is escrow?

You may encounter two types of escrow when buying and maintaining your home. The first form of escrow is used during the origination process to hold your earnest money deposit before your loan closes.

A long-term type of escrow account is used when servicing your loan to hold homeowners insurance premiums, property taxes, and mortgage insurance (if applicable). The benefit of an escrow account is splitting your payments into monthly increments, rather than a big outlay once or twice a year.

However, you may wish to remove the escrow account in order to lower your monthly mortgage payment and manage your expenses on your own for more financial flexibility. Escrow removal allows you to do exactly that.

Escrow removal requirements

Requirements vary based on your servicer and the type of mortgage loan you have. For example, FHA loans always require an escrow account.¹

The following represent Rocket Mortgage^® requirements:

Age of the loan and modifications

Fannie Mae, Freddie Mac, and VA loans generally must be at least 12 months old before you can request to remove escrow.² If the federal government considers your mortgage a higher-priced loan, it’s required to have an escrow account for at least 5 years.

With the exception of completed natural disaster-related assistance plans, you can’t have any prior loan modifications.

Equity requirements

Based on the original value of the home, Fannie Mae and Freddie Mac require you to have more than 20% equity. VA loans require at least 5% equity.

Payment history

Fannie Mae and VA loans require that you haven’t had any mortgage payments 30 or more days late in the last 12 months. Freddie Mac requires no 30-day late payments in the last 6 months. Additionally, Fannie Mae requires no payments 60 or more days late in the last 2 years.

Escrow history

For Fannie Mae and VA loans, you can’t have missed payments for taxes or insurance after a prior escrow removal. We can’t have had to place homeowners insurance on your property in the past because you went uninsured, or have been forced to put your property taxes in escrow.

You can’t have a negative escrow balance, but you can replenish the funds to zero it out or make it positive. You also can have no escrow payments due in the next 45 days.

Finally, servicers may need time to transfer accounts before handling a request for escrow removal if your servicing has recently been transferred to a new entity.

Ways to save even with an escrow account

If your escrow removal was denied, there are still plenty of other ways to save even with an escrow account.

Understand when you can remove your escrow account

Talk to your servicer about the timeline for when you would have the option to remove your escrow account. This could depend on the type of mortgage you have, servicer policies, and whether your servicing has recently been transferred.

Shop for lower homeowners insurance rates

You should periodically evaluate your homeowners insurance rates, shopping around to see if you can get similar coverage less expensively. Your insurance deductibles play a big role in the cost of homeowners insurance. You may be able to get a cheaper rate if you're willing to have a higher homeowners insurance deductible.

Evaluate your coverage needs

If you can’t get similar coverage at a lower rate – or even if you can – it can be a good idea to review how much coverage you actually need.

Lenders require that you have coverage to repair or rebuild the home in the event of damage. There are other types of coverage – including personal property and liability coverage – that may be unnecessary or impractical given your financial situation.

Homeowners may look to save money by purchasing actual cash value vs. replacement cost policies.

Actual cash value policies pay to replace your home or belongings minus depreciation, meaning you’ll receive the item's current value rather than what you originally paid for it. In contrast, replacement cost policies cover the actual cost to repair or replace your property with similar materials at today's prices,

While replacement cost offers more comprehensive coverage, actual cash value policies typically come with lower premiums.

Check for property tax exemptions

Property taxes pay for local services like park maintenance, schools, and emergency response. There are partial and sometimes full property tax exemptions available based on your personal circumstances and often how you occupy the property.

Some of the most common exemptions are those for primary residences, veterans, those with disabilities, and seniors. Making sure you’re claiming every exemption you qualify for can keep your property tax bill in check.

Look into refinancing

If rates have fallen since you bought your home or last refinanced, you may be able to take advantage of that lower rate to save money.³

When evaluating whether to refinance, you should look at how long you plan to stay in the home and evaluate your monthly savings against the closing costs.

The breakeven point is calculated by dividing your closing costs by your monthly savings. The result is how many months you need to stay in the home for a rate-and-term refinance to make financial sense.

For example, if your closing costs are $3,000 and your monthly savings are $100, your calculation looks like this: $3,000 ÷ $100 = 30. This means you’d need to stay in the home for at least 30 months for the refinance to break even.⁴

Whether you’re looking to lower your payment or consolidate debt by accessing equity, doing the math ahead of time can help you be confident that you’re making the right decision.

The bottom line: There are many ways to save on your mortgage payment

You may not be able to remove your escrow account right now, but there are other ways to save on your monthly payment. By shopping around for a better homeowners insurance rate, checking for property tax exemptions, or exploring a refinance, you have several strategies to help manage your costs.

If you're considering refinancing, you can apply online today.

¹ Rocket Mortgage is not acting on behalf of FHA or HUD.

² Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

³ Refinancing may increase finance charges over the life of the loan.

⁴ Any figures, interest rates, loan examples, and market data referenced in this article are hypothetical or aggregated for educational purposes only. They are not intended to reflect current pricing, available terms, or personalized loan options for any consumer. This content does not constitute an advertisement of credit terms, a solicitation or offer to extend credit, or a rate quote under federal or state lending laws. Actual mortgage rates and terms are determined by individual financial qualifications, property characteristics, market conditions, and other factors, and are subject to change without notice.

If you are seeking current, real-time mortgage rate information please refer to the official live rate information and product details published at RocketMortgage.com/mortgage-rates, where current pricing and various loan terms are made available.

Rocket Mortgage is a trademark or service mark of Rocket Mortgage, LLC or its affiliates.