What if the bank requires repairs to the house before closing?
Are you about to put in and offer? What about accept one? In today’s real estate market our offers need to be ultra-competitive, and buyers are doing whatever it takes to win. I found a simple trick that can make your offer stronger, and it helped me land a winning offer with a low-down payment. If you’re a seller beware of a potential expense. Here’s what you need to know about repairs before closing on a house.
Often times with FHA and conventional home loans the bank will require repairs of the premises in order to close. Typically, this will be exterior cosmetic repairs to protect the value of the home like painting exposed wood or securing handrails. Within the purchase contract it will have to be spelled out if the buyer or seller is responsible for said repairs, if any, and up to what amount. These will have to be completed and re-inspected by the bank before the closing.
This repair amount can throw a real estate deal off so make sure you consult with your agent and attorney about the matter. There is going to be a re-inspection fee, and this is also going to need to be either the responsibility of the buyer, seller or split evenly by both.
By taking responsibility as the buyer for any repairs needed to close, you are lessening the burden of the seller and insuring to them you are 100% serious. Use caution and provide a reasonable limit within the offer to protect yourself. This will allow the buyer to back out of the contract without penalty if said repairs are too high.
In the event that your bank is requiring repairs, as the buyer please note, that it’s the sellers house with whom you are repairing and by doing so doesn’t guarantee the mortgage going through. When I bought my first owner occupied rental real estate, I used an FHA loan for the 3.5% down option. We were a few weeks into the process and the bank did not approve of the exposed wood on 11 of the window frames and most of the front porch. In my offer, I was on the hook for repairs up to $1,500 dollars and this fell within. The seller got a kick out of it and happily provided the original paint used. A buddy of mine owned a painting company and I was able to knock out the whole thing for 375 dollars and about 6 hours of work. My agent was in the area, and he stopped by on his own time to check it over for me and recommended I get the paint scrapings out of the landscaping. This was totally his professionally gesture but made all the difference. For another 35 bucks I grabbed some mulch and covered any paint chips up, sorry mother nature I’ll be better next time. The inspector came back, and it was approved. In this case, it was well worth the effort and the house looked great afterwards!
By having this contingency on my offer, it not only allowed me to stand out, I also got to get in and make a mark on the new property before ownership. Ultimately, it made for less work and less money on the seller’s end. Anything you can do to make it easier for the seller is going to help you win that offer especially when working with a low down payment. If you are motivated and want to close as quickly as possible you also are able to take matters into your own hands and get it done asap! The faster you can move the better. FHA and conventional requirements end up being much stricter so don’t be surprised if they want repairs done. We lucked out only needing some paint, but it could be more, brace yourself!
As a seller you can agree to pay up to a set amount, usually around 500 dollars or split them with the buyer. Say for instance, the bank is requiring a new handrail on the front steps which cost 175 installed, typically, you’re on the hook. This may be your responsibility for the ball to keep rolling. It is a nice gesture to repair it for the buyer and can be used to write off some gains from the sale. After all it’s about the money. This will help them feel better about the transaction and let them know you care about the property. Brownie points with the future owner, real estate agents and attorneys can go a long way down the road for future purchases/ relationships. I’ve found they will take great care of my family and friend referrals knowing the extra care taken place in the process. It feels good to be contributing and connecting people.
Another form of inspection is pest inspection. If the banks inspector deems additional inspecting of infestations of bees or terminates this could derail the sale. Large beehives in sides of walls or garages can cause serious damage to the property. Removing them in summer can result in gallons of oozing honey that will easily destroy siding, walls and other aspects of your property. If you’re in an area where the chances of this are high make sure there are no hives or infestations before listing or submitted an offer. Again, spell out exactly how removal cost will be handled. Determine whether they are the buyer, seller or a split responsibility.
A home inspection of the property will give you a key insight onto what potential red flags may appear for the bank. On my walk through with the home inspector, he pointed out and had a good idea of what they will be looking for. He pointed out several concerns and let me know to be prepared. It is always advised to get a home inspection prior to closing.
In this real estate market most offers are coming across the table with no home inspections and adding in a set amount of repair dollars the buyer is responsible for will also boost the likelihood of acceptance. Remember, we want to win an offer while being reasonable and protecting ourselves. Sellers note, we need to build a good reputation and disclose any information we know of about the property. Always consult with the professionals before making any big decisions. Your agent should be able to give you a better idea of what they are seeing so having an established relationship with one is invaluable.
In Conclusion
The purchaser’s bank will determine if the property trying to be bought needs repairs. Typically, it will fall under the category of exterior protection of the home they are financing. Every financed offer will come with this contingency. It is the obligation of the buyer to write in the offer exactly what they expect done in the event that repairs are required. If they shall take financial responsibility, to what amount? What amount is without reason, and will the seller take responsibility for any amount over that? These can be split as well. Hopefully, luck is on your side and the mortgage will flow through smooth and require nothing. However, in the event that they do you can be a little more prepared.