How To Buy A House With Small Repairs in Florida?
If you’re in the process of buying a Florida house in need of repairs an escrow holdback might be the best solution. Escrow Holdbacks are used to facilitate loan closings for properties that are non-structural and expected to be completed in a reasonable timeframe (<120 days). The borrower is required to establish a cash escrow account that will ensure the completion of the required repairs. This accommodation allows the loan to close and the borrower to occupy the property while incidental repairs are completed. Escrow holdbacks are not intended to allow for renovations of a Florida home, but rather address repairs needed to ensure that the property is acceptable.
For repairs that require an investment exceeding the guidelines stated below, please refer to renovation repairs, within the HomeStyle, CHOICERenovation, FHA 203(k), or VA Renovation loan programs.
Section 2 Policies
2.1 Approval Authorization
Underwriters have the authorization to Approve and Condition for Escrow Holdbacks under the following situations:
- The appraisal was completed As-Is for existing construction.
- The loan meets the applicable agency guidelines as well as Florida Mortgage Lenders’s Program Guidelines.
- The repairs are minor in nature and the appraiser states the repairs do not impact the livability of the property or health and safety of the occupants.
- The repairs do not include anything structural and there are no comments from the appraiser stating the repair required may impact the integrity of the structure (or similar language)
- The work will be completed within 60 days for non-weather-related repairs or within 90 days for weather related repairs.
- The holdback is 150% of the required repairs. (1.5 times)
- A pool escrow is being done and the value of the pool is less than 15% of the property value. (new construction)
If the above criteria is not met, the escrow holdback must be submitted to corporate underwriting as an exception request. Refer to the Underwriting Policies and Procedures LO-PO-069 for details on submitting a Loan Exception Request.
2.2 Structural Repairs
Structural Repairs must be completed prior to funding. Any repairs that impact the safety of the homeowner and/or impact the integrity of the structure must be resolved prior to funding. Florida Mortgage Lenders can be held liable if we allow a loan to fund that has safety/soundness concerns and something happens to the homeowner prior to repairs being complete.
Small Repairs For Escrows for Swimming Pools
- The amount of the escrow must not represent more than 15% of the value of the property. If the pool exceeds 15% of the property’s value, the approval of Corporate Underwriting is required.
- The pool must be completed within 75 days of closing.
- Minimum escrow of 1.5 times the cost of the pool must be established.
- Only allowed on new construction properties. We do not allow swimming pool escrow holdbacks on existing properties.
Important Note: It is acceptable to permit a swimming pool contract from a third party and include the cost when calculating the sales price. In addition, the value of the pool should also be included in the appraised value.
Small Repairs For Bank Owned Properties
If the seller is a bank and there are non-weather-related repairs, the Operations or Underwriting Manager is authorized to approve an Escrow Holdback. An Escrow Holdback may only be approved for non-weather-related items on bank owned properties if the bank will not grant the borrower access to the subject property prior to closing.
For all products, refer to the Program Guidelines for additional information and requirements. Refer to Underwriting Policies and Procedures LO-PO-069 for details on submitting a UW Exception Request.
Small Repairs For FHA Escrow Holdback Specifics
Escrow Holdbacks on an FHA insured transaction are allowed for properties that require no more than $5000.00 in repairs to meet FHA’s minimum property standards. The property must be habitable by the borrower while the repairs are being completed.
The Escrow Holdback account will be established with an amount equal to 150% of the estimated cost of the repairs, collected at time of closing. Repairs are to be completed within 90 days of the loan close date. If weather does not permit exterior repairs a longer completion period may be granted.
FHA will not allow Escrow Holdback accounts for homes that need structural or foundation repairs. Homes that lack a roof, gas, electricity, plumbing and/or HVAC are also not permitted.
In the event the holdback is on a HUD REO, repairs of up to $10,000 are permitted.
Small Repairs For Dollar Amount of Escrow Holdback
A minimum of 150% (1.5x) of the cost of the repairs or improvements must be held in escrow. Florida Mortgage Lenders may consider allowing less than 150% of the cost of repairs to be held in an escrow account under the following parameters:
- The Builder or Developer is Providing the Escrow Holdback Funds
o A Florida Mortgage Lenders UW Exception Request must be submitted to Corporate Underwriting to allow less than 150% to be held in escrow. The relationship and reputation of the builder will be taken into consideration when approving this exception.
Completion Date
The completion date must be within a reasonable timeframe, but cannot exceed the following limitations without an exception from Corporate Underwriting:
- 60 days for minor and interior repairs.
- 90 days for weather related items or exterior repairs.
Escrow Holdback Final Inspection Fee
An Escrow Holdback Final Inspection Fee (minimum of $150.00) must be collected at the time of closing. If the inspection fee comes back higher than the inspection fee collected, the borrower is responsible for the difference that will come out of their Escrow Holdback Funds.
Procedures
The following steps are taken to establish an Escrow Holdback account:
Underwriting
- Obtain a bid from licensed contractor
- If the Underwriter determines the Escrow Holdback requires an exception, forward the information to the Underwriting Manager, who will review the information for approval and/or escalation to Corporate Underwriting, if applicable. Note:Jumbo, Non-QM, Closed-End Seconds, and the FHA 100% Combo program do not permit Escrow Holdbacks. Once approved the Underwriter adds the following conditions:
Conventional
- PTF – ESCROW HOLDBACK APPROVED – Florida Mortgage Lenders Escrow Holdback Agreement, Florida Mortgage Lenders
Notice of Work Completion signed by the Borrower, and Appraisal Update and/or
Completion Report Form 1004D/442 with photos to confirm all required repairs have been
acceptably completed, will be required.
- PTF: Escrow Holdback Agreement to be signed by all parties at closing
- 529: Escrow Holdback for (detail repairs) in the amount of $___ (1.5 times total of repair contract). Funds will be held from (buyer/seller) and work must be completed on or before (date)
Government
- PTF – ESCROW HOLDBACK APPROVED – Florida Mortgage Lenders Escrow Holdback Agreement, Contractor
Bids, Contracts, License and W-9s, Borrower Invoices, Cancelled Checks, Florida Mortgage Lenders Notice of Work Completion signed by the Borrower, HUD 92051 Compliance /Inspection Report, and HUD 92300 Mortgagee’s Assurance of Completion, will be required.
- Complete the Escrow Holdback screen in BREEZE
- The Seller/Builder information should auto-populate from the completed Seller Information screen.
- Select the Provider of the Escrow Holdback funds and enter their information in the Responsible Party fields including the Amount and date the work needs to be completed.
- Enter the contractor’s information (when applicable).
- Complete the Schedule of Work to be Completed; detailing each repair, holdback funds required, name and title of the person providing the funds and the completion date (this will trigger the Escrow Holdback Agreement to print with the Underwriting and Closing packages.
- The Escrow Party section will default to Florida Mortgage Lenders Servicing.
