Additional Closing Cost for not holding back reserves. (insurance, escrow, property tax)

[bbby]

I am putting 30% down on a conventional 30 year mortgage. Excellent credit etc. I prefer to pay my homeowners insurance and taxes directly myself and have done that on my past houses. This time I am being told there is a .25% charge if I don't want prepaids and a reserve account set up. This will cost me roughly 450.00 additional closing cost. I was told this is now a FNMA, FMAC requirement now. I have to pay more, so they can do less???? I never had to pay for this in the past. Is this really a new requirement or is my lender just tacking on an extra charge.

[mskb]

We also opted not to put our homeowner's insurance and property taxes into escrow and got hit with a charge as well (this was 2 years ago). I doubt it's a requirement - officially I think they (the mortgage/bank people) said it's to cover risk of us not paying but to me, it seems like it is just really just a way for the bank to make money off you since they won't get the extra interest off your escrow account. I could be wrong of course, but that's the way I saw it. I don't think a credit union would charge you that fee so I doubt it's a "requirement" but I would stand corrected if it's true!

Personally, I'm wondering if we'll have to pay that fee again if we refinance.

[sj08054]

Escrow requirements varies from lender to lender. Most require escrow if LTV is more than 80%. It is also not out of the ordinary that they charge you a fee if you decide to waive escrow up front. I see this requirement for a credit union that I uses (Penfed). I've seen some with a slightly higher rate when escrow is waived.

[Pfhtex]

It does vary. I've worked at half a dozen banks that do, but the one I am at now does not - - meaning, the cost is negligible and we eat it.