Escrow hold back for repairs for a purchase mortgage

DDA Mortgage • January 17, 2022

Conventional and FHA loan with Repair Escrow


Many buyers, sellers, and investors don't know about escrow holdback options or when to use them.



First, what is an escrow holdback?


An escrow holdback is an agreement that the lender will holdback money in an escrow until the seller takes care of some type of contingency. Common reasons for a holdback are repairs to the home or property.



What are some examples of an escrow holdback?


Buyer's may ask a seller to hold back escrow until they repair fences, landscaping, driveways, sprinklers, and/or anything that could affect the evaluation of the home and property.


For example, the home has a broken fence. But the seller could only schedule the repairs until after the closing date. You can keep your closing date and the lender can escrow funds to be released as soon as the repairs are complete.


What cannot be held back in escrow?


You cannot hold back escrow for just any home repair. If there are health or safety concerns, they must be addressed before closing on the home.



Who Decides When There Is An Escrow Holdback?


Holdbacks typically start with the appraisal, your lender based on the appraisal will decide when an escrow holdback is necessary. If your lender plans to sell your mortgage to a Freddie Mac or Fannie Mae after closing, they must comply with that governing rules regarding property appraisals and repairs. This can also lead to a holdback.


How Much Can A Lender Holdback?


Lenders can holdback up to 10% of the value of the home for conventional loans. There is a 90 day window and there will be a reinspection fee. FHA loan escrow holdbacks are about $5,000, have a 90 day window, and may have a reinspection fee.


Before you start looking for financing, make sure you have an experienced mortgage broker that can handle any issues that may arise during the process. You don't want to lose your dream home because your financing fell through.


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