Home buying can be a thrilling yet challenging journey, especially when home repairs are needed but not completed before closing.

In this blog post, we’ll explore the rules set by Freddie Mac and Fannie Mae regarding such scenarios, providing essential information for both current and prospective homeowners.

What Happens When Home Repairs Aren’t Completed Before Closing?

Imagine you’ve found your dream home, but there are a few repairs that need to be done. What if these repairs can’t be completed before you close on the home?

Don’t worry; Freddie Mac and Fannie Mae have specific guidelines to help you navigate this situation. However, it’s crucial to remember that not all lenders follow these rules, so their application isn’t guaranteed.

Home Repair Key Points to Consider

1. Appraisal Requirements
   • The appraisal must be either “as completed” or “subject to completion.”
   • The appraiser needs to note any incomplete items and provide a cost estimate for finishing these repairs.
   • Cost estimates should come from a qualified appraiser or contractor, not from friends or family members who aren’t in the business.
   • Incomplete items shouldn’t affect the safety, soundness, or habitability of the home.
2. Lender Support for Delayed Repairs
   • The lender must justify why these improvements can’t be completed prior to closing.
   • Valid reasons include weather conditions, shortages in building materials, or other legitimate issues.
3. Cost and Escrow Account
   • The cost of completing the repairs must not exceed 10% of the home’s “as completed” value.
   • An escrow account must be established with the funds controlled by the lender to ensure repairs are finished.
   • Not all lenders are willing to set up a post-closing escrow account for unfinished repairs.
   • Repairs must be completed within 180 days, and the appraiser must perform a final inspection to certify that everything is done.
4. Exceptions
   • This rule does not apply to manufactured homes.

Steps to Ensure a Smooth Closing Process

If your home repairs meet the criteria set by Freddie Mac and Fannie Mae, here are steps you should take to ensure a smooth closing process:

1. Work with Qualified Professionals
   • Ensure that all cost estimates come from qualified appraisers or contractors.
2. Provide Necessary Documentation
   • Gather and submit all required documents to get underwriting approval before closing.
3. Set Up the Escrow Account
   • Confirm with your lender that they are willing to set up a post-closing escrow account for the repairs.
   • Ensure the funds in the escrow account are sufficient to cover the estimated repair costs.
4. Monitor the Repair Progress
   • Stay in close contact with your lender and contractors to monitor the progress of the repairs.
   • Schedule the final inspection with the appraiser once the repairs are completed.

By following these steps, you can move into your new home without any major hiccups, even if some repairs are unfinished at the time of closing.

Conclusion

Navigating the home buying process when repairs are required can be complex, but understanding the guidelines set by Freddie Mac and Fannie Mae can help. Always ensure that you work with qualified professionals and maintain clear communication with your lender. By doing so, you can successfully close on your dream home while ensuring all necessary repairs are completed in a timely manner.

Additional Resources

For more personalized advice or to schedule an appointment with our team, click the link in the description below. We’re here to help you navigate your home buying journey every step of the way.

FAQ: Home Repairs Aren’t Completed Before Closing

1. What happens if home repairs aren’t completed before closing?

If home repairs aren’t completed before closing, Freddie Mac and Fannie Mae have guidelines that allow the closing to proceed under certain conditions. The appraisal must be either “as completed” or “subject to completion,” and the cost of repairs must be estimated by a qualified appraiser or contractor. An escrow account must be established with the funds controlled by the lender to ensure repairs are finished within 180 days.

2. Can any lender allow a closing to proceed with incomplete repairs?

Not all lenders follow Freddie Mac and Fannie Mae guidelines, so it’s important to check with your specific lender. Even if these rules are allowed, it’s not guaranteed that your lender will agree to proceed with the closing if repairs are incomplete.

3. What should the appraisal include if repairs are incomplete?

The appraisal must note any incomplete items and provide a cost estimate for finishing the repairs. These estimates must come from a qualified appraiser or contractor and not from friends or family members who aren’t in the business.

4. What types of repairs can delay completion before closing?

Repairs that can delay completion include those affected by weather conditions, shortages in building materials, or other valid reasons that prevent timely completion.

5. Is there a limit to the cost of repairs that can be delayed?

Yes, the cost of completing the repairs must not exceed 10% of the home’s “as completed” value.

6. What is an escrow account, and why is it needed for incomplete repairs?

An escrow account is a separate account where funds are held to ensure that repairs are completed. The lender controls this account to guarantee that the necessary repairs are finished within 180 days after closing.

7. Are there any exceptions to these rules?

Yes, these rules do not apply to manufactured homes.

8. What documentation is required for underwriting approval?

You’ll need to provide all necessary documents, including the appraisal with cost estimates and justification for why the repairs can’t be completed before closing. This documentation helps secure underwriting approval.

9. How long do I have to complete the repairs after closing?

Repairs must be completed within 180 days after closing. The appraiser will need to perform a final inspection to certify that everything is done.

10. What should I do to ensure a smooth closing process with incomplete repairs?

• Work with Qualified Professionals: Ensure all cost estimates come from qualified appraisers or contractors.
• Provide Necessary Documentation: Submit all required documents for underwriting approval before closing.
• Set Up the Escrow Account: Confirm with your lender that they will set up a post-closing escrow account for the repairs.
• Monitor the Repair Progress: Stay in close contact with your lender and contractors to monitor the repairs’ progress and schedule the final inspection.

11. Can I proceed with closing if the repairs affect the home’s safety, soundness, or habitability?

No, incomplete items that affect the safety, soundness, or habitability of the home must be addressed before closing.

12. How can I get personalized advice for my situation?

For personalized advice or to schedule an appointment with our team, click the link in the description of our original article or contact us directly. We’re here to help you navigate your home buying journey every step of the way.