Jen Bell, Loan Officer with Premier Mortgage Resources, explains the reasoning behind required repairs, and what clients need to know before they buy or sell.
In recent years lender required repairs have started to play a larger role in buying and selling real estate. In online articles one finds both realtors and mortgage lenders complaining about lender required repairs that don’t come to light until the late stages of the purchase process. These repairs can be inconvenient, intrusive, stressful and expensive. In other words, they can jeopardize a transaction.
As a Loan Officer, these stories makes me cringe. It makes lenders look bad, even when the required repair is mandated by state law. But as with most things, when all parties to a transaction are educated and know what to expect, the transaction can be more manageable and feel smooth to the client.
Now, let’s be real. These repairs may be a pain, but I'm here to get you through it. The intention behind any repair is to make certain that a home is safe, structurally sound, and that issues affecting property value are addressed at the time of sale. The ultimate responsibility for reviewing all loan documents and approving a loan rest on the underwriter. The underwriter relies on the appraiser’s report to know if the physical condition of the home meets the criteria required for the loan to proceed.
These are typical conditions that are called out on appraisals or contained in repair addendums that will likely trigger lender required repairs:
- Missing or non-working Carbon Monoxide Monitors and Fire Alarms
- Missing Water Heater Straps
- Water Stains or Missing Tiles on Floors or Ceilings
- Missing Flooring in Living Spaces
- Shingles Missing and/or Moss on Roofs
- Missing Railings on Stairs or Decks
- DEQ Woodstove Certification
- Dry Rot
- Peeling Paint
While this list contains the basics, a lender can require any repair they choose. Since a loan is typically several hundreds of thousands of dollars and it is necessary that the property is worth the value of the investment. Neither the buyer nor the bank wants the property to decrease in value due to deferred maintenance or structural damage.
While every lender is different in terms of what they may require when it comes to repairs we are all governed by federal and state laws, so it’s typical to see the same issues come up consistently. Some examples include the co2 detector requirement, water heater straps, or the DEQ certified wood stove requirement. Some repair requirements are put in place to protect the health and safety of the home’s occupants, such as the replacement of missing railings on stairs or decks. In addition to state laws and health and safety guidelines, underwriters are tasked with assessing the strength and condition of the property, and reducing the risk of liability.
I let my clients know there are 2 primary ways that lender required repairs are brought to the attention of the underwriter.
1. When a repair addendum is submitted to the seller by the buyer, it becomes part of the sales contract. As part of the contract, the appraiser, lender, and underwriter will review it. As they deem necessary, underwriters may ask for repairs to be completed whether or not the seller and buyer agreed to it.
2. The second way needed repairs are discovered is through the appraiser’s report. As our underwriting manager, Lisa Speer explains, “I rely on the appraiser to be my eyes and ears for the property. If the appraiser identifies issues with the property and makes the appraisal subject to certain items being fixed or corrected, those are items that the lender would require as the value of the property is subject to those repairs being completed. My job as an underwriter is to verify that we have a solid and sound property that meets the investor and secondary marketing guidelines and doesn’t have any health or safety issues. I will not require any repair that is not necessary.”
With all this, at Premier Mortgage Resources we typically require only the repairs to which the buyer and seller agree. However, there is always the chance that the appraiser may find issues to address. This could trigger further negotiations between buyer and seller, the requirement that repairs are completed and the property re-inspected by before closing.
I work to the best of my ability to make sure that appraisals and any required repairs can be dealt with and still close on time. I order appraisals as soon as the buyer and seller are in contract, rather than waiting until after the inspection period, unless requested to do otherwise. This moves the process along more quickly. However, because buyers often shorten inspection periods (from 10 business days to as few as 5, in order to remain competitive with other offers), it is less likely that required repairs are released before the shortened inspection period ends.
There are other market conditions of which buyers should be aware. During the peak summer season when appraisers are in high demand, the system is slower and lists of lender required repairs take longer to reach the buyer, increasing the odds that notification of required repairs will be received later in the transaction.
It’s important to understand that if a buyer and seller can’t come to agreement when faced with lender required repairs, the transaction will be terminated based on loan contingency in the contract rather than the inspection contingency. The earnest money should be returned to the buyer. That said, losing out on a property after all the work involved is small comfort.
This is precisely why I work every loan so diligently, tracking the file and passing all information to the agent and buyer immediately so that quick action can be taken. For buyers to have the best possible experience as they look for a home, they should work with an experienced realtor, home inspector, and loan officer, who remain attuned to the details, strategy and timing needed to support their home purchase through the entire process.
If I can answer questions, discuss the loan qualification process and what buyers should expect from a lender, I’d be happy to hear from you.
Jen Bell, Loan Officer
Premier Mortgage Resources
D. Larson, Editor