When you work so hard getting (and keeping) deals together, there is nothing more frustrating than something not being taken care of in time for closing. But if the buyer is okay with completing it after closing, why would the lender care?

If the appraiser or contract calls for repairs to be made or items to be replaced, the lender typically requires those to be completed before the loan is closed. If these repairs don’t happen, it could impact the valuation, health and safety of the collateral and therefore put a heightened risk of the loan performing or the homeowner taking legal action.

Not every repair or replacement is for health and safety reasons and sometimes it is simply that timing isn’t on your side to complete everything before the closing date — in this case, lenders can provide an alternative called an escrow holdback.

An escrow holdback allows the lender to retain funds in excess of the value of the work and materials needed to complete the repair or update after closing, but before they deliver the loan for purchase by Fannie Mae or Freddie Mac. A few general rules of thumb are:

• The updates or repairs cannot have any health or safety implications.

• The dollar amount of the updates or repairs is verified and held by the title company of at least 120% of the required amount.

• The borrower’s rate lock covers the work and inspection/verification time period, typically not to exceed 5-7 days from the closing date.

• Anything that may negatively impact the property’s value or their ability to sell the loan to the investor will most likely not have an escrow holdback granted.

The lender ultimately has discretion as to whether or not they feel the risk is managed and if they will be able to successfully deliver the loan to the investor within a reasonable time period. 

We all know loans are like snowflakes — no one is the same. Our Key Mortgage loan officers will be able to provide counsel to you and your clients and help provide the available options for their specific situation. Reach out to one of our loan officers today!