Just this week while representing a buyer I ‘re’learned a lesson about repairs. My buyer is purchasing a resale south Chico home using an FHA loan. We have completed our inspections and, while the home is basically sound there is one troubling area of potential problem – the Heating/Air Conditioning unit is about 26 years old and (according to the inspectors report) this type of unit has a normal life expectancy of about 20 years. The inspector said we should be concerned about hairline cracks that develop allowing dangerous gases to permeate the house!
No problem thought I, we’ll ask the seller (in this case it is a bank owned property) to provide us with a ‘credit’ or ‘rebate’ for repairs, which the buyer will use to make the repairs once they take possession of the house….WHOOPS! The other agent quickly stated his belief that to rebate funds to the buyer is “illegal”. While I can find no evidence that to do so would be illegal the reality is that most lenders do not allow money for repairs to be paid to the buyers at the close of escrow. The FHA goes further in stating that any conditions affecting the ‘Safety, security or soundness’ dictate that “appropriately registered/licensed trades person, as applicable, must provide documentation that all deficiencies have been acceptably corrected upon completion of repairs”. And those repairs must be completed before the loan is funded aka close of escrow.
The reasons for this is are understandable: 1. the lender doesn’t want to know that the house has problems, cut a check to the buyer to fix it and find out later that the money was used for a trip to Hawaii! and/or 2. the lender wants to know that the buyer has used all of their own funds (or approved gift funds) for the down payment and closing costs and is not using the repair rebate money to pay back a loan shark that lent them the money for their down payment (thus increasing the buyers monthly obligations).
Sooo… back to the conference room to draw up a differently worded request – this time we will probably ask the seller to pay for a new Heat-A/C unit to be installed prior to the close!
No problem thought I, we’ll ask the seller (in this case it is a bank owned property) to provide us with a ‘credit’ or ‘rebate’ for repairs, which the buyer will use to make the repairs once they take possession of the house….WHOOPS! The other agent quickly stated his belief that to rebate funds to the buyer is “illegal”. While I can find no evidence that to do so would be illegal the reality is that most lenders do not allow money for repairs to be paid to the buyers at the close of escrow. The FHA goes further in stating that any conditions affecting the ‘Safety, security or soundness’ dictate that “appropriately registered/licensed trades person, as applicable, must provide documentation that all deficiencies have been acceptably corrected upon completion of repairs”. And those repairs must be completed before the loan is funded aka close of escrow.
The reasons for this is are understandable: 1. the lender doesn’t want to know that the house has problems, cut a check to the buyer to fix it and find out later that the money was used for a trip to Hawaii! and/or 2. the lender wants to know that the buyer has used all of their own funds (or approved gift funds) for the down payment and closing costs and is not using the repair rebate money to pay back a loan shark that lent them the money for their down payment (thus increasing the buyers monthly obligations).
Sooo… back to the conference room to draw up a differently worded request – this time we will probably ask the seller to pay for a new Heat-A/C unit to be installed prior to the close!
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