There are some ways that the repair negotiations can keep the bank from closing on time, though. Let's review the two most common tripwires and how to avoid them.
Post Closing WorkRealtors often ask if repair work can be done post closing. In short, the answer is no. This is just putting unnecessary risk in play for the buyer. What if the trades person doesn't do the work as agreed? What if they do the work but the cost ends up being more than planned? No one wants to be dealing with these issues after the closing is done.
While I know it sometimes happens where the trades person is paid at closing even though the work isn't done and the lender is none the wiser, it's a bad habit for Realtors to get into. To protect your buyer's experience and your future referrals, get the work done before closing.
Seller ConcessionsMany times the buyer and seller decide to let the buyer handle repairs in the future with the seller compensating them for that cost at closing with additional seller concessions. This is problematic on three fronts:
- If there already are seller concessions in place, the additional amount may put total concessions above the maximum allowed. This comes up the most with conventional loans. Total seller concessions for conventional financing can't exceed 3% of the price, regardless of the reasoning for it.
- The additional concession may cause the bank to need to re-disclose. A seller concession is factored into the APR calculation. If the APR is more than 0.125% more or less because of the change, the lender has to re-disclose and give the buyer at least three days to consider the new figures before closing. That means the lender can't find out about this when the HUD is being drawn up. It's too late then to re-disclose and close on time.
- Lastly, when additional concessions are added, the appraisal will need changed and re-approved by the lender. Appraisers have to report any concessions in their report. This updated report may take a couple of days to get back and another day or two to be reviewed. Again, if the lender learns about this additional concession days before closing, closing isn't going to happen as planned.
Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office. One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University. You can connect with Lori Hiscock or apply online here.