Repair Escrow Accounts
The USDA loan program allows borrowers to purchase properties in as-is condition and fix them up after closing. This is useful for elective repairs and absolutely essential when a home doesn't meet property standards, which is common in this market with REO properties and other cases where sellers in tough economic times are unwilling or incapable of making repairs prior to closing.
Repair vs. Rehabilitation
It is good to keep in mind that the escrow accounts are for repairs, not for major rehabilitation. In fact, the accounts can only be used when the required repairs do not affect the livability of the home. Therefore homes needing major structural, electrical, and plumbing repairs, etc. are not eligible post-closing repair.
Eligible Repairs
Paint
Carpet
Tile
Fixtures
Cabinets
Counter Tops
Fridge
Stove
Microwave
Dishwasher
Disposal
Sinks
Toilets
Minor Plumbing
Minor Electrical
Roofing
Heating
Air Conditioning
Water Heaters
Windows
Doors
Energy $ Imp
Steps
Decks
Smoke Detectors
Etc.
Requirements
--If the project costs exceed $2,000 or the repairs at any amount require professional training, the borrower must work with a well-established professional contractor.
--The contractor must provide a signed contract and itemized bid schedule.
--The contractor must provide an occupational license, if applicable, and evidence of insurance.
--The minimum escrow funding balance must be 150% of the contractor's bid.
--The work must be completed in 60 days.
--The appraiser must perform a final inspection and issue a Certificate of Completion Report.
--The escrow funds may be disbursed only after the Certificate of Completion Report is issued.
Funding Sources
