Think about it for just a moment. You have worked hard, saved up, and hunted high and low. Finally, you have found your dream home. At least, you thought you had.
But the inspections have turned up some pretty ugly facts about your home. It could be the wiring is outdated and poses a fire danger, or the roof isn’t actually quite as sound as it looks from ground level.
Whatever the situation, Escrow Holdbacks are a solution that will help secure your home purchase while giving the seller incentive to repair any issues.
How do holdbacks work?
Oftentimes, homebuyers are eager to get into their new home before agreed-upon repairs are finished by the seller. Most buyers like having the chance to get right into their new home in order to measure, decorate, renovate, or update the home to their liking. Holdbacks allow you to finish the purchase of your home and, therefore, get you into your home faster.
In real estate transactions, the term “holdback” refers to a portion of the purchase price that will not be paid to the seller until certain repairs or other conditions are met. Once a seller accepts a purchase offer, an escrow account will be established to hold the funds that are being held back by the seller.
Why do holdbacks work?
Saving for your down payment, establishing your good credit, and finding a mortgage lender are just the first steps in buying a home. Homes are not indestructible and sometimes stand, lived in, for decades. There is always upkeep involved, but new home-buyers often struggle to find the money for repairs so soon after a large purchase such as real estate.
Unfortunately, most real estate sellers are simply reluctant to pay for needed repairs or improvements before selling a house. Whether the repairs are required, suggested, or requested, holdbacks act as reminders to sellers that they will not receive the full-purchase price of the property until they have held up their end of the bargain.
Are holdbacks required?
Escrow holdbacks are not required for standard home mortgages as the repairs are agreed upon during negotiations between the buyer and seller. However, mortgage lenders are less likely to award financing on properties that need extensive repairs. They are also likely to only agree on financing a smaller amount because the property value is affected by the needed repairs or renovations.
On the other hand, FHA loans will require a repair escrow account to be opened on HUD listed homes in need of minor repairs before a regular loan will be granted. This will allow the buyer to close the purchase and add the repair costs to the loan amount. The funds are then dispersed to the buyer upon completion of the repairs.
In conclusion, purchasing a home is expensive enough without worrying about how to pay for the small things that may need fixed before your home is truly ready for your family. If you are eager to complete the purchase of your new home while avoiding immediate repair costs. In the end, escrow holdbacks will ensure your purchase as well as the comfort, health, and safety, of your family.