Understanding lender required repairs is necessary for property owners seeking to sell their property and buyers applying for mortgage loans. Realtors and mortgage lenders are familiar with the challenges of lender required repairs on REO property in need of repair when a mortgage loan is involved. The lender, usually the underwriter, reviews all pertinent documents such as the appraisal, inspection, title work, or purchase contract on a property prior to approving a mortgage loan. The physical condition of the property must meet the criteria set by the lender for the loan to proceed. The loan company is protecting their investment over the life of the loan.
What Triggers the Lender Required Repairs
As a rule, cosmetic issues are not an issue; however, if the physical condition of the home compromises the safety or function of the property such as structural problems, zoning violations or code violations, the lender will require specific repairs be completed before they will approve a loan.
Typically, the seller may be required to complete the repairs prior to the closing of the sale because the property still belongs to the seller. The seller has the following choices: complete the repair list, sell the property “as-is” and risk losing the potential sale or find a cash buyer instead.
What Kind of Repairs Do Lenders Require?
Typical Conditions that likely trigger lender required repairs include missing or non-working carbon monoxide monitors and fire alarms, missing water heater straps, flooring issues such as missing tiles or uneven floors, deteriorating roof issues, missing stair rails or broken stairs, and peeling paint or water stains on the ceiling.
Conventional lenders tend to request repairs on larger structural issues noted on appraisal reports such as foundation cracks, roof replacement, or code violations for a converted garage.
The United States Federal Housing Administration (FHA) will typically have a longer extensive repair list than the conventional lenders because they are subjected to a number of governmental guidelines. The repair list can range from peeling paint in homes built before 1978, broken gutters, exposed writing or any visible physical condition that needs to be addressed.
Ideally, the underwriter immediately reviews the acquired documents pertaining to the property being sold as soon as the buyer and seller are in contract to expedite the repairs request. Summer is typically the busiest season for appraisers, which may result in a situation in which the notification of lender required repairs is received later in the loan process.
If the Deal Falls Through
Sometimes the real estate transaction falls through because the seller and the buyer can’t reach an agreement regarding lender required repairs. When this happens, the transaction is usually terminated based on a loan contingency, allowing the earnest money to be returned to the buyer.
How to Use an REO Property Management Company to Sell Your Property
It’s invaluable to have the right REO property management company help you develop a winning strategy to whip your property in shape for optimal value within a reasonable amount of time. First Freedom Preservation has the experience, the passion and the dedication to assist you in selling your investment from start to finish. Call us today to discuss your needs and assist you in understanding lender required repairs..