When there are required repairs or renovations that show up on an appraisal, they can be paid for through what is called an escrow holdback.
As an example, I’m currently helping an elderly couple who don’t have the ability to make any repairs—but they do have the money needed to do so. In situations like this, we hold money back from the seller at closing to pay for any fixes that are needed.
Escrow holdbacks are used for things such as roofing or flooring work; we won’t use it for room additions, foundations, kitchen upgrades, and other renovations that are unnecessary for the home. They should be done for minor, one- to two-day fixes.
Let’s say there’s $5,000 of work that needs to be done. The mortgage company will require 150% of the repair costs to be held at the title company. So in this case, the title company would hold back $7,500. Once the repairs are complete, the lender will send the appraiser to verify the work has been done. After this, the money is released to the vendor who did the work, and the remaining money is returned to the seller.
Keep in mind that not all mortgage lenders will conduct escrow holdbacks, so be sure the lender you choose is willing to.
If you have any questions about this process or would like some more information, feel free to give me a call at 210-215-4400. It doesn’t cost a penny to talk!