A repair escrow may either be funded by the buyer or the seller, and is typically determined by the contract.
If the seller is required to pay for the repairs, the escrow funds will be collected from the seller at closing. Refusal to comply with this requirement may jeopardize the approval of the mortgage plan and the buyers may be excused from backing out of the contract.
If, however, the buyer undertakes to pay for the repairs as indicated in the contract or if a buyer decides to undertake the repairs when a seller refuses to make repairs as required, the repair costs may be recouped to the purchase price of the home by a buyer. The amount of the repairs may be any of the three: the estimate by the appraiser, the amount bid by the contractor, or the amount of the appraised value in excess of the purchase price. It is crucial to make the repairs after the appraisal, otherwise the repair costs cannot be added to the purchase price.
There is a loan program which caters to financing needs under this type. The Buyer/Seller Funded Repair Escrow may be used on Federal Housing Authority (FHA) or Conventional Loans. It may also be used on Veterans Administration (VA) Loans except if the seller is the one funding the repairs.
Under this type of loan, the repair amount limit may be up to 10% of the improved value or $10,000, whichever is less. This is in addition to a 10% contingency reserve. There may be scenarios when the listed costs of repairs may exceed said repair amount limit. The good news is that exceptions may be requested from the Renovation and Underwriting department.
To know more about the eligibility requirements for financing under A Buyer/Seller Funded Repair Escrow, it is best to consult with your neighborhood mortgage specialist. PrimeLending offers various loan options to interested homebuyers nationwide.