You may have heard me comment here that mortgage underwriting guidelines aren’t really tighter now – they are the same as they always were, they’re just being used now.

But over the last few months one thing has gotten a lot tougher – how to handle repairs.

It’s fairly standard that after the home inspection, the buyers will make repair-requests of the sellers.  Because sellers typically cut corners or do shoddy work, we’ll ask for a money credit, rather than have them complete the actual repairs.

The lenders insist on the repair monies going towards the buyers’ closing costs, which is fine – unless we negotiate a credit that’s larger (closing costs for most buyers are around 1%).

When that happens, we’d have our contractors submit their invoices to escrow, and be paid out of the sellers’ proceeds at close to ensure that we use the entire credit. 

But now the lenders are insisting on them approving the sellers’ estimated closing statement prior to close – and they’re looking for repair bills.  In cases where we have had some repair costs being included on the sellers’ side, the underwriter has requested a copy of the physical inspection report too – and have been critical of what they have found.

It is prudent for lenders to have a full grasp of the property being secured, no question. 

The fear is that their additional scrutiny will cause them to deny loans for some properties, even if we have adequate repairs lined up to get them in shape.  They haven’t killed a sale for us yet, but it’s coming.  It’ll make the fixers harder to sell, driving down their prices further to compensate – and causing more competition for the cream puffs. 

Hopefully the 203k and other home-improvement mortgages will gain favor with those who don’t mind buying a project!

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