Conventional loans · Fannie Mae B2-1.5-04Can you waive escrow on a conventional loan?

A Fannie Mae first mortgage generally provides for escrow deposits to pay taxes, ground rents and property and flood insurance premiums as they come due, and escrow for borrower-purchased mortgage insurance is mandatory. In a condo, co-op or PUD whose association carries a blanket insurance policy, the unit's property and flood insurance does not need to be escrowed. If a special assessment was not paid at closing, the monthly payment must build up enough to pay it when due. Fannie Mae recommends escrow, especially for first-time homeowners and borrowers with blemished credit, but unless the law requires an escrow account, the lender may waive it for an individual loan – the standard escrow clause stays in the loan documents so it can be enforced later. The lender must have a written policy for waivers, and that policy cannot rest on the loan-to-value ratio alone: it must also consider whether the borrower can handle lump-sum payments of taxes and insurance. Escrow cannot be waived for borrower-purchased mortgage insurance or for certain refinances that finance taxes. Separately, federal rules require an escrow account for higher-priced mortgage loans.