The VA appraisal process includes a high-level look at health, safety and marketability conditions of the property. It’s not uncommon for the VA appraiser to uncover problems that need to be repaired before your loan can move forward.
Many times these are small-ticket issues that require minimal time and money. But there are times when bigger and costlier problems arise.
In either case, there’s a pervasive misconception among many real estate agents and even lenders regarding who can pay for these repairs. Sellers and buyers are often told only the seller can foot the bill for repairs.
Needless to say, that can cause a VA purchase deal to collapse or lead would-be sellers to avoid accepting VA offers entirely.
The reality is VA buyers can pay for home repairs needed to close a loan, even if they’re issues related to the VA’s Minimum Property Requirements. Guidelines and policies on how this works in practice can vary by lender.
To be sure, if the VA appraisal indicates there are repairs needed, buyers should first ask the seller to cover these costs. But if the seller refuses and you want to keep the deal going, you may be able to pay for the repairs yourself.
Whether that’s a good financial investment is often the key question.
Paying for Repairs
At Veterans United, we typically approach borrower-paid repairs like this:
- The borrower needs to sign a hold harmless agreement
- If the total cost of repairs is $500 or less, the work shouldn’t be completed until an underwriter has conditionally approved the loan
- If the total cost of repairs is greater than $500, the work shouldn’t be completed until the lender issues a clear to close on the loan
There are also some interior repairs that can be completed after the loan closes. In these cases, the borrower would need to put money to pay for these repairs in an escrow account. This is known as an escrow holdback. You’ll typically be required to put 1.5 times the cost of repairs into the escrow account.
Common interior repairs that can be replaced after closing include torn carpet, installing handrails and replacing cracked tile. Bigger projects like major electrical work, plumbing repairs or foundation work would need to be addressed before the loan could close.
Repairs on Distressed Properties
Another thing to bear in mind with paying for repairs is that you may not always have the option, and this often comes into play with distressed properties and bank or government-owned homes.
Veterans can look to use their VA loan benefits to purchase foreclosures and other distressed properties. But tackling repairs can pose a major challenge.
Banks, the U.S. Department of Housing and Urban Development (HUD) and other agencies that own distressed properties won’t typically pay for repairs that are needed to close a loan. But they don’t always allow buyers to pay for them either. Often these homes are sold truly “as-is,” with no repairs allowed before closing.
Talk with a Veterans United loan specialist at 855-259-6455 if you’re hoping to purchase a foreclosure. They’re not always in the best of shape, and any repairs that come up can pose a real issue for getting your VA loan to closing.
A Wise Investment?
Last, the biggest issue with paying for repairs out of your own pocket is that you’re spending money on a home you don’t actually own. Now, once you receive a clear to close, it’s relatively rare for things to go sideways, but it does happen. The last thing you want to do is pay for repairs on a home you can’t ultimately buy.
If your VA appraisal comes back with repairs, talk with your loan officer about your options and the potential outcomes. But do know that you may be able to cover these costs to keep the deal moving forward.