What You Need to Know About the USDA Repair Escrow
The USDA Repair Escrow Loan can Help You Close
Many home buyers find their dream home, but then hit a brick wall in the loan approval process: the appraiser says it does not meet USDA loan guidelines. The home of their dreams requires minor repairs to be completed or they will not be able to close. The seller won’t budge – they have a loan that requires all repairs to be completed before closing, but that’s impossible since the process can’t move forward without those repairs. It seems like a frustrating, impossible situation, but it can be rectified with a Delaware USDA Repair Escrow Loan. The John Thomas Team can help you navigate the specifics of the Delaware USDA Repair Escrow – give us a call today at 302.703.0727 or APPLY ONLINE.
What is the Delaware USDA Repair Escrow?
Simply put, the Delaware USDA Repair Escrow is a USDA loan option that allows you to finance necessary minor repairs AFTER you close on your home.
This is not comparable to a full renovation loan like the FHA 203K Rehab Loan or HomeStyle Renovation Loan. This is an escrow repair option that allows you to repair certain items under very specific guidelines and allows those repairs to be financed into a USDA loan. With the Delaware USDA Repair Escrow, the repair funds are placed in an escrow and are released to the licensed contractor once the repairs have been made. It requires a 50% deposit at the time of closing (this can be paid by either the buyer or the seller) . The deposit covers any potential overpayment for the work performed and is not allowed to be financed.
The Delaware USDA Repair Escrow is a great option for handling minor repairs that are holding up the closing process.
What Can I Repair With the USDA Repair Escrow?
The Delaware USDA Repair Escrow is a very niche product – while it is immensely helpful, there are certain things you can’t repair. Repairs that are allowed must be minor repairs that do not affect the safety or visibility of the home you are purchasing. For example, the following repairs would be suitable:
- Replacing an Air Conditioning Unit
- Replacing the flooring in a home
- Install a hot water heater
- Repairing holes in a floor
These are all repairs that would only affect certain aspects (the air conditioner, the floor, etc). This means that more major repairs are not allowed, including:
- Roof Repairs
- Structural Changes
- Electrical Work
It’s important to understand the guidelines and get a good grasp on the types of repairs you need vs. the types of repairs allowed with the Delaware USDA Repair Escrow. An appraiser should list every necessary repair to move through with closing, and your chosen contractor will need to list each repair in the contract.
What are the Rules and Requirements of the Delaware USDA Repair Escrow?
The Delaware USDA Repair Escrow has very specific requirements:
- Repair costs are not allowed to exceed 10% of the final loan amount ($10,000 maximum)
- As stated above, the safety and livability of the home must not be affected
- A signed contract or agreement must be in effect for the proposed repair work at closing
- An invoice must be generated and present at closing
- Repairs must be done within 10 days of closing
How Do I Qualify for the Delaware USDA Repair Escrow?
Typically, an appraiser will specify the repairs that need to be made so that your house can meet standards set by the USDA. From there, you’ll need to get a solid bid with a licensed contractor. The repairs should be spelled out in detail and there needs to be a contract in place via the approved contractor. The date of completion of the work should be within 10 days after closing.
The closing attorney will draft an agreement and include the contractor details, any penalties for not completing the work, and a set deadline. At closing, a deposit is required and can be paid by either the buyer or seller. Once closing is done, the contractor can get started on the required work. After the work has completed, the appraiser can check the repairs and the attorney is allowed to release the funds once they are marked as complete.
Where Can I Learn More About the Delaware USDA Repair Escrow?
There’s a lot more to the Delaware Repair Escrow and it’s important to get all the information available. Contact the John Thomas Team at 302.703.0727 to speak with a knowledgeable lender or APPLY ONLINE.