Definition
If you have great credit and put down a large down payment, some lenders will let you pay property taxes and insurance yourself instead of through escrow. You'll have a lower monthly payment but must pay bills on time.
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Some lenders allow borrowers with strong credit scores and significant down payments to waive the escrow requirement. Instead of the lender collecting taxes and insurance through the monthly mortgage payment, the borrower pays these directly to the county and insurance company. This requires the borrower to be well-organized and ensure payments are made on time, as late payments can result in tax liens or insurance cancellation. Not all lenders offer this option, and some state laws restrict its use.
Pro Tip
Only pursue an escrow waiver if you're confident paying taxes and insurance on time. Late payments can have serious consequences.
Example
Marcus had a 750 credit score and put 25% down. His lender allowed him to waive escrow, so he pays his $3,000 annual property taxes directly to the county in two installments and his $1,200 annual insurance to his agent, reducing his mortgage payment by $350 per month.