We see this issue too much where the appraiser is requiring repairs to be completed on the home in order to meet USDA guidelines. If the seller is HUD, Fannie Mae, or a bank, often they will not allow the repairs to be completed prior to the closing but then the loan can’t close because the house is not in good enough condition. So what do you do?
Well, we allow an Escrow Holdback for the repair of items that can be done quickly and under $5000. This is on a case by case basis and underwriting will review the overall file as well as the work to be performed to decide if allowed.
Here is basically how the escrow repair works:
- Appraiser says the appraisal is “subject to completion” of repairs and states the items that need to be repaired in order to meet standards
- Buyer obtains a firm bid from a licensed contractor specifically stating the work to be completed (as per the appraisal) and a firm date for the work to be done in 5 days or less
- If the seller will contribute towards this repair and there is enough room in seller contributions (read seller maximum contributions for programs here), the contract can be amended where the seller can pay towards this repair
- Closing attorney to prepare an Escrow Holdback agreement referencing the contractor’s bid, a deadline for the work, and penalties if not completed in time
- Closing attorney is to escrow 1.5 times the amount of the repair bid to allow for overages
- Buyer and/or seller may fund the Escrow Holdback amount
- The purchase closes and the contractor can then begin working
- Once the repairs are completed, the appraiser completes a final inspection to show the work is complete
- We then give the attorney permission to release the funds needed to the contractor and any remainder goes to the buyer
Examples of types of repairs that we have used the Escrow Holdback are:
- Replace HVAC
- Repair and paint rotted facia boards
- Repair holes in kitchen floor
- Install safety eyes on garage door
- Install a stove and dishwasher that are drop in
- Install hot water heater
This is a great product for buyers and for agents that represent companies or agencies which will not allow work to be performed but know the property will not close as is. Also if the property needs more than $5000, we also have our FHA 203k purchase / rehab loans for primary residence purchases. Contact us if you have a property in need of repairs and we will work together to find a solution.