Short answer: outside a few federal rules, whether you can skip an escrow account depends on your loan terms and the lender. Federal rules require escrow for property taxes and required insurance on higher-priced first-lien loans on your principal dwelling, and, for loans covered by the flood insurance law, for required flood insurance premiums, with exceptions. If a loan has no escrow account, the Closing Disclosure must say why, list your yearly property costs, and show any fee the lender charges for not setting one up. This page covers federal law only; other rules may apply where you live. It is general information, not legal or financial advice.
When federal rules require escrow
| Rule | What it requires | Source |
|---|---|---|
| Higher-priced first-lien loans | A creditor may not make a higher-priced mortgage loan secured by a first lien on your principal dwelling unless an escrow account is set up before closing for property taxes and the mortgage-related insurance it requires; it may be cancelled only when the debt ends or on your request at least five years after closing, if your balance is under 80 percent of the original value and you are not behind | 12 CFR 1026.35(b)(1), (b)(3) |
| Flood insurance premiums | For a loan on a home or mobile home where flood insurance is required, federal regulators must require that premiums and fees be paid to the lender or servicer with each loan payment and held in escrow, for the life of the loan | 42 U.S.C. 4012a(d)(1)(A) |
Both rules have exceptions. The higher-priced loan rule does not apply to cooperative units, initial construction loans, bridge loans of 12 months or less, reverse mortgages or PACE transactions, and some smaller creditors in rural or underserved areas are exempt; insurance need not be escrowed where a homeowners association must keep a master policy (12 CFR 1026.35(b)(2), eCFR, text up to date as of October 28, 2026, read October 30, 2026). See the higher-priced mortgage escrow requirement. The flood escrow rule excludes, among others, junior liens, home equity lines of credit, loans with a term of 12 months or less, homes covered by an association policy paid by the association from shared dues, and some smaller lenders, unless other law requires it (42 U.S.C. 4012a(d)(1)(B), LII, read October 30, 2026). See the mortgage flood insurance requirement.
Where it shows on your loan papers
The Loan Estimate shows your estimated monthly taxes, insurance and assessments even if no escrow account will be set up, says which of them escrow will pay, and says that you must pay separately anything escrow does not pay (12 CFR 1026.37(c)(4), eCFR). We found no line for an escrow waiver fee on the Loan Estimate rules; the fee is named on the Closing Disclosure. On the Closing Disclosure, under “Escrow Account” (12 CFR 1026.38(l)(7), eCFR):
| If there is no escrow account, the Closing Disclosure must show | Section |
|---|---|
| That you will not have one, and the reason | 1026.38(l)(7)(i)(B) |
| That you must pay all property costs, such as taxes and homeowners insurance, directly | 1026.38(l)(7)(i)(B) |
| That you may contact the creditor to ask whether an escrow account is available | 1026.38(l)(7)(i)(B) |
| A “No Escrow” table with your estimated property costs for year 1, which you may have to pay in one or two large payments | 1026.38(l)(7)(i)(B)(1) |
| Any fee the creditor charges for not setting up an escrow account, labeled “Escrow Waiver Fee” | 1026.38(l)(7)(i)(B)(2) |
| What can happen if you do not pay property costs | 1026.38(l)(7)(ii)(C) |
Example: paying the bills yourself
This example is only for the math, with example bills and an example fee, not figures from any lender or tax office.
| Item | Example |
|---|---|
| Yearly property tax | $4,200 |
| Yearly homeowners insurance premium | $1,800 |
| Property costs over year 1: $4,200 + $1,800 | $6,000 |
| With escrow: monthly escrow deposit ($6,000 ÷ 12) | $500 |
| With escrow: largest cushion a servicer may hold (one-sixth of $6,000) | $1,000 |
| Without escrow: tax paid in 2 installments of | $2,100 |
| Without escrow: amount to set aside each month ($350 tax + $150 insurance) | $500 |
| Escrow waiver fee, if charged (example) | $750 |
The monthly cost is the same either way; what changes is who holds the money and when the large bills hit. A servicer may collect one-twelfth of the yearly escrow bills each month plus a cushion of no more than one-sixth of the yearly total (12 CFR 1024.17(c)(1), eCFR). See property tax bill payment options.
If you do not pay property costs
The Closing Disclosure must describe what can happen, including the actions the creditor may take, such as adding amounts to the loan balance, adding an escrow account to the loan, or buying property insurance for you that may cost more and cover less than a policy you buy yourself (12 CFR 1026.38(l)(7)(ii)(C)). The CFPB says the same, and adds that unpaid property taxes can lead to penalties, a tax lien or foreclosure (CFPB: escrow accounts, last reviewed September 11, 2024, read October 30, 2026; this page may be out of date). See force-placed insurance on a mortgage.
If an escrow account is set up after closing and was not a condition of the loan, the servicer must send an initial escrow account statement within 45 calendar days after setting it up (12 CFR 1024.17(g)(2)). Whether your servicer may add one later depends on your loan documents; ask. The CFPB also suggests considering a voluntary escrow account even when a lender does not require one, to spread large bills over monthly payments.
Questions to ask the lender
- Is an escrow account required on this loan, and under which rule?
- If I may skip it, is there an escrow waiver fee or a different rate, and how much?
- What property costs are on the No Escrow table, and when is each one due?
- Can I open an escrow account later if I change my mind?
- Under my loan documents, when may the servicer add an escrow account?
Checklist
- Read the Escrow Account section of the Closing Disclosure.
- Write down each property tax and insurance due date.
- Set aside one-twelfth of the yearly bills each month.
- Keep proof of each payment.
- Tell your servicer at once if a policy is cancelled or a tax bill is missed.
You can submit a complaint at consumerfinance.gov/complaint.
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Sources
- eCFR: 12 CFR 1026.35, Requirements for higher-priced mortgage loans (Regulation Z), current text up to date as of October 28, 2026
- Cornell LII: 42 U.S. Code 4012a, Flood insurance purchase and compliance requirements and escrow accounts
- eCFR: 12 CFR 1026.37, Content of disclosures for certain mortgage transactions (Loan Estimate) (Regulation Z), current text up to date as of October 28, 2026
- eCFR: 12 CFR 1026.38, Content of disclosures for certain mortgage transactions (Closing Disclosure) (Regulation Z), current text up to date as of October 28, 2026
- 12 CFR 1024.17, Escrow accounts (Regulation X) (eCFR)
- CFPB: What is an escrow or impound account? (last reviewed September 11, 2024)
- CFPB: Submit a complaint
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.