Lender Required Repairs on a Home
Dealing with lender required repairs is one of the most challenging parts of a home sale for both buyers and sellers. These repairs are most common in traditional mortgages since lenders want to finance loans for homes that people can move into immediately.
Generally, neither the seller nor the buyer is always responsible for paying the lenders required repairs. Repair responsibilities are negotiable. It may be shouldered exclusively by the buyer or the seller or it can be shared by both. If no one wants to pay for the lender required repairs, the sale will fall through. In this case, you can explore selling the house as-is to a cash buyer.
Want to learn more about handling lender required repairs? Check out the rest of this blog!
What are Lender Required Repairs?
Lender required repairs are the major issues of a property that need to be fixed in order for the lender to finance the purchase of it. These lender required repairs are vital when you get Federal Housing Administration loans (FHA loans) or Veterans Affairs loans (VA loans).
The main reason why lenders require repairs is to ensure that when the buyer fails to pay their mortgage, the value of the property can cover the losses.
Remember that the home is collateral in a mortgage, so it will be sold to pay for the non-payment of the loan and all the late fees. Lender required repairs are known to add value to a property; hence, lenders require the property to be inspected and every issue be addressed.
Appraisal Required Repairs
FHA Lender Required Repairs
If you applied for a Fair Housing Administration (FHA) loan to buy a property, here are the FHA lender required repairs that you need to carry out in a certain time frame:
- Downspouts that are unpainted and rain gutters that are broken
- Peeling paint
- Outbuildings that are already rotting
- Doors that don’t open and close properly
- Exposed junction box and faulty wiring
- Leaks and plumbing issues
- Non-functioning HVAC systems
- Damaged or leaky roofs
- Roofs that only last for three years
- Pest infestations
- Rotting support columns, eaves, and window sills
- Missing appliances that are typically sold with the home, ex. stove, air conditioning, water heater
- Structural issues
- Wet or flooded basements
- Standing water present in the crawl space
- Kitchen appliances that aren’t working
- Unusable pools
- Ripped screens
- Broken or leaning fences
- Code violations involving a converted garage
VA Loan Required Repairs
The Veterans Affairs (VA) loan requires repairs that are centered on the structural soundness, security, and safety of a property. Here are some of the VA lender required repairs tagged as Minimum Property Requirements:
- The home’s mechanical systems should be safe and in working order
- There should be adequate roofing and heating
- There should be no exposed wiring
- Basements and crawl spaces should be dry
- No fungus growth, termites, and dry rot
- Lead-based paint should be removed
Conventional Loan Required Repairs
Conventional loans are not backed or offered by the government. Generally, conventional loans are taken from credit unions, banks, mortgage companies and other private lenders.
Since the government is not involved, conventional lenders tend to be less strict in their required repair compared to the VA or FHA requirements.
Although, you can also expect most conventional lenders to require significant repairs after a home inspection, such as roof replacement, fire and water damage fixes, and mold prevention.
How Do Lenders Determine Required Repairs?
To identify what VA or FHA lender required repairs are needed in a home, mortgage servicers typically depend on the disclosure of the seller and the appraisal report.
A seller’s disclosure document details all the major issues of the home that the homeowner is aware of that can hinder the new owner from enjoying the property.
Here are some of the things that can be included in a seller’s disclosure:
- List of repairs needed and repairs that are already completed
- Threats to safety such as if the house is prone to flooding or near a fault line
- Pests and termites
- Death on the property
An appraisal report is a document that details the market value of the property based on its physical condition, quality, and location. This objective report is furnished by a professional appraiser after a home inspection.
Can You Avoid Lender Required Repairs?
You cannot really avoid FHA lender required repairs if you are selling in today’s market.
Repairs are required by the lenders to ensure that when the buyer defaults on their home, the house has a high market value that can cover the losses.
Even with private lenders, lender required repairs are really expected to be completed before the buyer’s loan is approved.
You can only avoid FHA lender required repairs if you don’t sell traditionally. This is when you opt for cash buyers who eliminate lenders from the picture by giving you a cash offer. These buyers would buy your property as-is, therefore sparing you from expensive repair costs.
We’ll talk about the cash buyer selling process in a later part of this guide.
Who Pays for Lender Required Repairs?
Who will pay for the VA or FHA lender required repairs depends on the negotiation between the buyer and the seller. Most people think that it’s the seller who should pay for it, but in reality, no one and everyone is responsible.
No state laws determine who should pay when the lender requires repairs, so the buyer and the seller should come to an agreement fast if they want to close on the house.
Options for Buyers and Sellers
In connection to who pays the lender required repairs, sellers and buyers have five main options to deal with such matters. Note, though, that it would still depend on how the negotiation turns out.
The Seller Pays for the Repairs
Buyers usually have more negotiating power in the traditional real estate market. They may demand the seller to deal with all the lender required repairs as well as some additional repairs if the price of the property is too high compared to its actual market value as evident in the appraisal.
The Buyer Pays for the Repairs
To maximize their profit, many sellers require repairs to be shouldered by their buyers. When a buyer refuses, they let the sale fall through and wait for another buyer to step up and pay for the lender required repairs. This is most common in a seller’s market.
The Seller and Buyer Both Pay for the Necessary Repairs
If the buyer and seller wish to compromise or neither have much negotiating advantage, they’ll each pay a portion of the lender required repairs.
For instance, the seller would have pipes redirected away from the home for water flow, while the buyer would pay for the cost of drying out and cleaning up the moldy closet.
The Seller Pays for the Repairs But Increases the Contract Price
Most buyers depend on a loan when buying a home, so they don’t really have the cash to deal with lender required repairs.
If this is the case, the seller may take care of the lender required repairs and increase the selling price of the property. This way, the buyer won’t have to pay repair fees with cash but through the financing of the lender or loan company.
The Buyer Pays for the Repairs But Negotiates for a Lower Sales Price
If it is decided that the seller would pay for the lender required repairs, but he doesn’t want to use his earnest money to pay for it upfront, the buyer can pay in the meantime and ask the seller to lower the selling price of the home.
In other words, the cost of lender required repairs is deducted from the sale proceeds.
The Deal Falls Through
This is the last and probably the least option, too. Letting the sale fall through is the only choice for the buyer and the seller if they cannot arrive at an agreement on who will pay for the lender required repairs.
If this happens, all the time and effort of both parties invested to negotiate would be wasted. But, this will allow the seller to find another buyer that may agree to pay for the lender required repairs of the home.
Sell the House As-Is to a Cash Buyer
We understand how stressful it is to deal with lender required repairs, especially if your buyer is getting a conventional loan, so here is an alternative — sell your house as-is to a cash buyer!
Getting a cash offer is actually pretty common these days to avoid lender required repairs. A cash offer speeds up the whole sales process by eliminating lender repairs and loan applications.
In other words, even if your house is in a bad state (ex., it has typhoon damage, has squatters in it, is a hoarder home, etc.), it can be left unchanged and the cash buyer would still make an offer.
Cash sales are more reliable than traditional sales, where retail buyers can back out anytime due to the appraisal required repairs.
Should you decide to sell your house fast to a cash buyer, the process is quite simple. You ask for a cash offer via call or fill out a form on the cash buyer’s website. After which, the cash buyer will visit your property to formulate an accurate offer.
If you accept the offer and sign the contract, the sale will proceed to closing.
The time you’ll spend selling to the cash buyer and signing the contract is comparatively shorter than scheduling a home appraisal and making certain repairs in a traditional real estate transaction.
Final Thoughts: Lender Required Repairs on a Home
Who pays for lender required repairs is actually a trick question, as no one is required to as dictated by the law, but everyone is responsible.
Repair fees when you sell your old house can balloon to thousands of dollars. Both buyers and sellers should negotiate fairly to execute appraisal required repairs fast and close on the loan.
Alternatively, sellers can opt to get a cash offer and sell as-is to avoid lender required repairs. Cash buyers, as detailed earlier, eliminate lenders in the whole sales process.
If you are ready to sell your house fast without the hassles, reach out to us at Sell My House Fast. We’ll give you a fair offer and make the necessary repairs so you don’t have to.
Fill out our form below or call us at (844) 207-0788 to sell your house and avoid lender required repairs!
Sell My House Fast For Cash!
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Author: Andy Kolodgie
Andy Kolodgie is an experienced real estate investor with a network that expands nationwide. As owner of Sell My House Fast, Andy’s goal is to provide home sellers with more options to their real estate problems than a traditional home sale. He’s been featured on multiple publications including Yahoo Finance, MSN, HomeLight, Credit.com, Apartment Therapy, Business.com, LegalZoom, Zolo, and Creditcards.com.