When Can Funds Be Put In Escrow For Repairs?

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut NMLS #65149

It is not uncommon for a Realtor or a Borrower to ask me if funds can be put into escrow so repairs can be done after the closing.  The answer is both a YES and NO answer.  So When Can Funds Be Put In Escrow For Repairs?

First of all the only Loan Products I am ware of which allow for funds to be put into escrow for repairs after the loan Closes are Fannie Mae Homepath Loans on Fannie Mae REO Properties, FHA 203K, and FHA Loans on FHA/HUD owned properties.  HUD will not make repairs prior to the Closing, and do not allow the Buyer to go into the property to make repairs.  So FHA will allow funds to be put into escrow on their foreclosed properties since they will be insurer of the new loan. 

All other loans I am aware of ALL repairs have to be completed prior to the Closing EXCEPT if weather does not permit for repairs to be made.  Some examples of situations of when funds are allowed to be put into escrow for repairs because of weather conditions are:

  • A Roof which needs to be repaired or replace during Winter months in a State where snow is common during the Winter.
  • Exterior painting during a time of the year the temperatures are to cold for the paint to dry properly.
  • Exterior cement/concrete work during a time of the year the temperatures are to cold for the cement/concrete to cure properly.

There are other examples similar to those above, but these three are the most common ones I see.  Under these types of situations the Lender will allow for funds to be put into escrow for repairs.  But even under these situations putting funds in an escrow account for repairs to be completed after the Closing is not automatic.  A Lender could refuse to escrow for repairs if the area is experiencing an unusually warm Winter, or for other similar reasons. 

Even when funds are allowed to be put into escrow for repairs, it is not the ideal thing to do, for example:

  • 1 1/2 times the estimated cost of the repair will need to be put into escrow.  This could be a burden to the Sellers, especially if those funds are needed to close on another property.
  • Repairs may not be done to the Buyers satisfaction, but meet the Lenders requirements.
  • Additional problems could be discovered during the repair, and not enough money in escrow to correct them.
  • Other damage to the property could occur while waiting for the repairs to be performed. 

For these reasons and others, escrowing funds for repairs to be performed after the closing should be avoid unless absolutely necessary.

So When Can Funds Be Put In Escrow For Repairs?  They are allowed only when they are specific to the Loan Product, or under very special circumstances like the ones listed above.

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Gabe Sanders 01/09/2017 11:48 PM
  2. Gita Bantwal 01/15/2017 07:35 AM
Topic:
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Location:
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Joni Bailey
Berkshire Hathaway Home Services - Anderson Properties - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

People always ask if this can be done. My answer is always... VERY rarely! At least that's how it is around here.

Jan 02, 2017 10:00 PM #7
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Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi George - you are always very thorough in your explanations.

Jan 03, 2017 12:11 AM #8
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Sally K. & David L. Hanson
Keller Williams 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce - Short Sale

Winter does hamper repairs for states where winter means little exterior work can be done.

Jan 03, 2017 05:02 AM #9
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Dorie Dillard
Coldwell Banker United Realtors® ~ Subsidiary of NRT, LLC - Austin, TX
Realtor-Canyon Creek- NW, Austin TX Homes For Sale

Good morning George Souto ,

Wonderful post with a clear explanation on what is allowed if you want to escrow repairs at closing. We find it best to credit buyer for closing costs and leave the repairs to the buyer to complete after closing.

Jan 03, 2017 06:22 AM #10
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Nina Hollander
RE/MAX Executive | Charlotte, NC - Charlotte, NC
Your Charlotte/Waxhaw/Fort Mill Area Realtor

Great information, George. I can't remember the last time I had a transaction where repair funds were put into escrow. Of course, I also don't live in an area where severe winter weather might impact repairs. Typically, we just have a credit to the buyer towards closing costs instead.

Jan 03, 2017 08:39 AM #11
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Steffy Hristova
HomeSmart Elite Group Tel: 480-966-9353 - Tempe, AZ
Tempe AZ Realtor - Your Home Close to Your Work!

Thanks for clarifying on this topic, George. As Dorie pointed above, it's simpler and easier on all parties to have a credit for closing costs to the Buyer than to put money in escrow for repairs.

Jan 03, 2017 10:39 AM #12
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Hella Mitschke Rothwell
(808) 226-1095 or (831) 626-4000 - Honolulu, HI
Hawaii & California Real Estate Broker

Excellent information, George. Interesting about the weather exceptions. Better for the seller to give a credit for repairs.

Jan 03, 2017 10:40 AM #13
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Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale - Probate Specialist

George,  Thank you for this informative post!

It may work to simply provide a credit for repairs that do not need to be done prior to the close of escrow.  

Jan 03, 2017 12:07 PM #14
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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Good information and so misunderstood. I know on some of my FHA loans, the "repair gnomes" go in and make repairs. Not sure who they are, but they save my deals at times. 

Jan 03, 2017 12:08 PM #15
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi George - Thinking back, I don't think we've ever had a situation where funds were escrowed for repairs. We have had the seller pay a contractor for work to be done after closing, but those were almost always for items that were cosmetic and had no significance regarding the property condition.

Jan 03, 2017 03:16 PM #16
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Noah Seidenberg
Coldwell Banker - Evanston, IL
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What an excellent post to start ouyt 2017 George. I learned something here.

Jan 03, 2017 03:40 PM #17
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Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
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Hello George,
I am going through this situation now.  Need a new roof but not able to do so because of winter weather. If we are going to close before Spring, need to figure out a method to make repairs/payment in Spring.
Mel

Jan 03, 2017 05:03 PM #18
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Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Hello George- thank you for the very clear explanation about funds that might be put into escrow for repairs. 

Jan 03, 2017 06:54 PM #19
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Sham Reddy
H E R Realty, Dayton, OH - Dayton, OH
CRS

Thanks for a great advice!!!

HUD will not make repairs prior to the Closing, and do not allow the Buyer to go into the property to make repairs.  So FHA will allow funds to be put into escrow on their foreclosed properties since they will be insurer of the new loan.

Jan 04, 2017 04:01 AM #20
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Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Executive Loan Advisor, Marin Mortgage Broker

Nothing to add but an "Amen, hallelujah."

Jan 04, 2017 05:34 AM #21
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Harry F. D'Elia
Real Estate and Beyond, LLC - Phoenix, AZ
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I have the answer "That Depends......." Best to discuss with title rep and mortgage professional.

Jan 04, 2017 05:47 AM #22
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Hannah Williams
Re/Max Eastern inc. - Philadelphia, PA
Expertise in NE Philadelphia & Bucks County

George Souto  You always provide us with useful information .  It makes so much sense when you think about it .

Jan 04, 2017 08:08 AM #23
Rainmaker
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Jeff Pearl
RE/MAX Distinctive / LIC in VA - Leesburg, VA

Good information. Title companies here no longer want to hold funds in escrow for anything if they can avoid it.

Jan 10, 2017 03:23 AM #24
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Sheri Sperry - MCNE®
RE/MAX Sedona - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi George Souto - you made a lot of good points for both buyers and sellers to consider.  

Jan 15, 2017 09:57 AM #25
Rainmaker
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Sharon Tara
Sharon Tara Transformations - Portsmouth, NH
New Hampshire Home Stager

Excellent information for both sellers and buyers! A well deserved Feature!

Jan 18, 2017 02:17 PM #26
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