Can I Pay My Own Taxes and Insurance? | Mortgage Escrow Reserve Account Guide

If you’ve ever looked at your mortgage payment and wondered why taxes and insurance are bundled in, you’re not alone. Many homebuyers ask whether they can simply pay those bills themselves — and the answer depends on how much equity you have and what your lender requires.

What Is a Mortgage Escrow Account?

An escrow account (also called an impound or reserve account) is a holding account managed by your loan servicer. Each month, a portion of your mortgage payment is set aside to cover your property taxes and homeowners insurance when those bills come due.

Lenders require escrow accounts to protect their investment. Property taxes in Washington State are paid in two installments — April 30 and October 31 — and unpaid taxes can take priority over your mortgage lender’s lien position in a foreclosure. Lenders don’t want that risk, so they collect the funds in advance.

When Is an Escrow Account Required?

If your down payment is less than 20%, your lender will almost certainly require an escrow account. This applies to conventional, FHA, VA, and USDA loans — though VA and USDA have their own nuances. Once you have at least 20% equity, you may have the option to waive escrow, depending on your loan type and lender guidelines.

What Does It Cost to Waive Escrow?

Most lenders charge a fee to waive your escrow account — typically 0.25% of the loan amount. On a $600,000 loan, that’s $1,500 in added cost, either collected upfront or priced into your interest rate. The rate impact is usually around 0.125%, which adds roughly $40–$50 per month on a loan that size. In many cases, keeping the escrow account is simply the better financial deal.

A Middle-Ground Option

If you have at least 20% down and prefer to manage some bills yourself, there’s a compromise worth asking about: some lenders will allow you to waive the homeowners insurance portion of your escrow while still collecting property taxes. This gives you more control over your insurance without taking on the full risk of managing both.

How Much Is Collected at Closing?

The amount collected upfront varies based on your closing date and when your first payment is due. For a purchase, lenders typically collect 14 months of homeowners insurance at closing (12 months prepaid plus a 2-month cushion). Property tax reserves are calculated based on when taxes next come due relative to your first payment date. If you’re buying a condo, the lender generally does not collect homeowners insurance — your HOA master policy covers the building — though you’ll still want a renters or HO-6 policy for your personal belongings and liability.

Is It Ever Worth Waiving Escrow?

Occasionally. If you’re a disciplined saver who would consistently earn a meaningful return on the funds between tax payment dates, the math could work in your favor. But for most homeowners, the convenience of having taxes and insurance built into the monthly payment outweighs the modest benefit of managing the funds independently — especially given the waiver fee.

Have questions about escrow accounts or how your mortgage payment is structured? Let’s talk — I’m happy to walk through the numbers for your specific situation.