When I was trying to purchase that condo earlier this year, someone was very confused that my lender was allowing me to waive my escrow account. This person determined, I’m assuming, based on my age that I was a first-time home buyer and didn’t understand why a lender would let a first-time home buyer waive the escrow account.
I explained that I had done the math and since the property taxes are such a small amount* (they’ve been around $3,200 for the last couple of years on my condo), the escrow account was more complicated than necessary.
This person then told me that my lender must really trust me because normally lenders don’t waive escrow accounts for first-time home buyers.
Why does it matter if I am a first-time home buyer when I fit the characteristics of a “good” buyer?
- I brought 20% to closing, in addition to all of the closing costs.
- I kept about $32,000 in reserves after closing.
- I don’t have a long credit history, but I have never missed a payment.
- I have been regularly contributing to my 401(k) and have accrued a balance of about $30,000 in a few short years of working.
- I have never overdrawn my checking account. I didn’t actually even know that word existed until a few years ago.
- I took out an auto loan and paid it back in 12 months, with the payments coming directly out of a savings account.
- My proposed mortgage payment is under 15% of my gross monthly salary, excluding bonuses. If you add in the HOA dues, you’re still looking at under 20% and even throwing in the property taxes doesn’t bring you up to 25%.
- I have been with the same employer for the sufficient amount of time (two years), with a regular, strong paycheck.
Looking at the above picture, I think that my situation is probably not what the notary thought of as the “normal” first-time home buyer situation.
Why did I choose to waive my escrow account? I felt that it was just as easy to set aside the funds myself, rather than into an escrow account and I’ll just track them in my normal spending plan and then send the money off to the county automatically via bill pay when it’s time. It didn’t seem that complicated.
Readers, do you pay your property taxes yourself or do you use an escrow account with your lender?
*I can’t believe I’ve gotten to a point where $3,200 feels like such a small amount, but honestly, I could pay that out of cash flow in a month fairly easily with a small bit of juggling (no savings, mortgage pre-payment and only enough of a 401(k) contribution to get the match). And considering that the taxes are paid in two installments each year in my county, I wouldn’t need to reduce the 401(k) contributions to be able to pay the property taxes.