It's not uncommon for issues to arise during the VA appraisal process. This doesn't automatically mean the purchase deal will go down the drain. There is flexibility regarding who can pay for these repairs.
The VA appraisal process includes a high-level look at the property's health, safety, and marketability conditions. It's not uncommon for the VA appraiser to uncover problems that need repairs before your loan can move forward.
Many times these are small-ticket issues that require minimal time and money. But there are times when bigger and costlier problems arise.
In either case, there's a pervasive misconception among real estate agents and lenders regarding who can pay for these repairs. Sellers and buyers are often told only the seller can foot the bill for repairs.
Needless to say, that can cause a VA purchase deal to collapse or lead would-be sellers to avoid accepting VA offers entirely.
The reality is VA buyers can pay for home repairs needed to close a loan, even if they're issues related to the VA's Minimum Property Requirements. Guidelines and policies on how this works in practice can vary by lender.
To be sure, if the VA appraisal indicates there are repairs needed, buyers should first ask the seller to cover these costs. But if the seller refuses and you want to keep the deal going, you may be able to pay for the repairs yourself.
Whether that's a good financial investment is often the key question.
At Veterans United, we typically approach borrower-paid repairs like this:
In some cases, repairs can be completed after the loan closes. The borrower would need to put money to pay for these repairs in an escrow account. This is known as an escrow holdback.
You'll typically be required to put 1.5 times the cost of repairs into the escrow account.
Common interior repairs that can be replaced after closing include torn carpet, installing handrails and replacing cracked tile. Bigger projects like major electrical work, plumbing repairs, or foundation work would need to be addressed before the loan could close.
Another thing to bear in mind with paying for repairs is that you may not always have the option, which often comes into play with distressed properties and bank or government-owned homes.
Veterans can look to use their VA loan benefits to purchase foreclosures and other distressed properties. But tackling repairs can pose a significant challenge.
Banks, the U.S. Department of Housing and Urban Development (HUD), and other agencies that own distressed properties won't typically pay for repairs needed to close a loan. But they don't always allow buyers to pay for them either. Often these homes are sold truly "as-is," with no repairs allowed before closing.
Talk with a Veterans United loan specialist at 855-259-6455 if you're hoping to purchase a foreclosure. They're not always in the best of shape, and any repairs that come up can pose a real issue for getting your VA loan to closing.
Last, the biggest issue with paying for repairs out of your pocket is that you're spending money on a home you don't actually own. Now, once you receive a clear to close, it's relatively rare for things to go sideways, but it does happen. The last thing you want to do is pay for repairs on a home you can't ultimately buy.
If your VA appraisal comes back with repairs, talk with your loan officer about your options and the potential outcomes. But do know that you may be able to cover these costs to keep the deal moving forward.
VA loans allow Veterans to have a co-borrower on the loan. Here we break down co-borrower requirements and provide common scenarios around co-borrowing and joint VA loans.
Your Certificate of Eligibility (COE) verifies you meet the military service requirements for a VA loan. However, not everyone knows there are multiple ways to obtain your COE – some easier than others.