Navigating Conventional Loans with Unfinished Home Repairs Before Closing

Purchasing a home is a significant milestone, but what happens when your dream home has unfinished repairs at the time of closing? This guide will help you understand the guidelines set by Freddie Mac and Fannie Mae for handling such situations, ensuring a smooth home buying process.

Dealing with Unfinished Repairs at Closing

You’ve found the perfect home, but it needs some repairs that can't be completed before closing. Fortunately, Freddie Mac and Fannie Mae offer solutions for this scenario. However, not all lenders adhere to these guidelines, so always confirm with your lender.

Essential Considerations

1. Appraisal Specifications

• The appraisal must be marked as either "as completed" or "subject to completion."
• Appraisers need to list any unfinished items and provide cost estimates for their completion.
• Cost estimates should be sourced from qualified professionals, not personal acquaintances.
• Unfinished items must not compromise the home's safety, soundness, or habitability.

1. Lender's Justification for Delayed Repairs

• Lenders must explain why the repairs cannot be completed before closing.
• Valid reasons include weather delays, material shortages, or other legitimate issues.

1. Repair Costs and Escrow Accounts

• The repair costs must not exceed 10% of the home’s "as completed" value.
• An escrow account, managed by the lender, must be established to cover the repair costs.
• Not all lenders agree to a post-closing escrow account for incomplete repairs.
• Repairs must be finished within 180 days, followed by a final inspection by the appraiser.

1. Exceptions

• These rules do not apply to manufactured homes.

Steps for a Successful Closing

To ensure a smooth closing process when repairs are needed, follow these steps:

1. Engage Qualified Professionals

• Obtain repair cost estimates from certified appraisers or contractors.

1. Submit Comprehensive Documentation

• Provide all necessary documents to secure underwriting approval before closing.

1. Establish an Escrow Account

• Confirm your lender’s willingness to set up an escrow account for the repairs.
• Ensure the escrow funds cover the estimated repair costs.

1. Monitor and Complete Repairs

• Maintain communication with your lender and contractors to track repair progress.
• Arrange for a final inspection by the appraiser once repairs are complete.

By following these guidelines, you can move into your new home without major issues, even if some repairs are pending at closing.

Conclusion

Navigating home purchases with incomplete repairs can be challenging, but understanding Freddie Mac and Fannie Mae’s guidelines can simplify the process. Always work with qualified professionals and maintain clear communication with your lender to ensure all necessary repairs are addressed promptly.