Lender Required Repairs [What You Need to Know for FHA, VA and Conventional Loans]

*Updated 9-6-2024

You are excited to close the deal on purchasing your first home in Texas, but you conduct a home inspection as requested by your local DFW loan provider. After the home inspection is done, you are made aware of repairs your lender has required for you to secure your loan. How do you proceed?

A lender-required repair is a repair that a financial lender (like a mortgage company) requires before a loan is secured by the home buyer for a specific property. Lenders often require repairs on a property’s condition because the lender is making an investment by lending money, and the property acts as collateral for the loan and investment.  

When a lender requires a repair, it can delay the closing date, increase the appraisal value of the property, and cause the sales price to increase.

What Are Lender-Required Repairs?

Lender-required repairs can differ depending on the type of loan you use. Nevertheless, whether you use a conventional, VA (U.S. Department of Veterans Affairs), or FHA (Fair Housing Administration) loan, you will need to ensure the home’s condition meets the demands the lender has required. 

A lender-required repair occurs during the home-buying process but after the home inspection during the option period or appraisal report. After a home is inspected, both the home buyer and the lender are presented with the information. While there are typically various matters that are brought to the surface during this process, many of those are of little to no concern for the lender.

However, there may be specific repairs related to the home’s safety, its structural integrity, or minimum property standards that cause the lender to require a repair on these issues before a loan is granted. For instance, if the roof is leaking, the floor is caving in, a window is broken, house smells like mildew, the lender will likely require repairs.

Lender-required repairs can affect the homebuying process because they occur after a home buyer and seller have entered a contract. Thus, the closing date will often be delayed because of repairs that need to be done before the buyer can secure a loan.

The seller usually bears the burden of paying for the repairs. At the same time, these repairs could increase the appraisal value of the home and cause the sale price of the home to increase. In sum, lender-required repairs have the potential to alter a contract in a significant way. 

Types of Loans and Their Repair Requirements

So, what lender-required repairs might you encounter from various loan types? Whether you are a seller or a buyer, being prepared can help you navigate the process.

• Conventional Loans
  • A conventional loan is less strict than an FHA or a VA loan. With a conventional loan, you will encounter the prioritization of health and safety concerns. If the home is secure, safe, and sound, the buyer will likely be approved for the loan.
  • Some examples of what may cause a lender-required repair for a conventional loan include the following: peeling paint, faulty wiring, water damage, mold, fire damage, and HVAC air-conditioning issues.

• FHA Loans
  • The Federal Housing Administration (FHA) has strict repair loan requirements that you will want to be aware of. For starters, the FHA has minimum habitability rules for traditional mortgage lenders. In other words, it does not matter if you are in Dallas TX or San Antonio, they only approve loans if a home is move-in ready.   
    
    o   Some examples of what may cause a lender-required repair for an FHA loan include the following: lead-based paint, water-heater issues, old roof, non-permitted additions, converted garages, and lack of structural soundness like foundation issues.
• VA Loans
  • Much like the FHA loan policies, to acquire a VA loan, the home needs to be deemed habitable. As a result, there could be various major repairs a lender may require to meet their minimum standards. Safety, security, and structural soundness are major issues of concern for VA loan lenders. 
    
  • Some examples of what may cause a lender-required repair for a VA loan include the following: pest infestations, plumbing issues like broken sewer lines, crawlspace problems, roofing, lead-based paint, and HVAC system issues.

Common Lender-Required Repairs

Whether you are a buyer or home seller, you will want to be aware of the common types of required repairs that you may encounter.

• Exterior Repairs
  •  If a home was built before 1978, peeling paint is a cause for concern, as it can indicate lead-based paint. Structural problems, such as a leaky roof, issues with the foundation, or even damaged handrails could need repaired. Water damage caused by a leaky roof or malfunctioning HVAC units could also need to be repaired. 
  • While some of these fixes may be costly, they will allow the home seller to market the house more efficiently and better attract potential buyers. Oftentimes, the first impression of a home is the most important, and a home’s curb appeal can help to sell the rest of the home.

• Interior Repairs
  • Lenders may require faulty wiring to be repaired, such as exposed wires, uncovered junction boxes, and frayed wires. Major leaks and improperly supported plumbing may need to be fixed. Appraisers and home inspectors will also inspect HVAC systems to ensure they are in proper working condition.
  • Depending on the type of repair, the market value or home appraisal could remain the same or increase in proportion with the cost of the repair. As a result, the seller could potentially increase the sale price of the home because of the repairs. 

• Safety Concerns
  • Issues around health and well being safety concerns, such as termite infestations, structural soundness, and other safety issues are red flags for lenders. Termite inspections are characteristic of VA loans because termite damage poses a significant risk to the structural soundness of the home.
  • Such safety concerns as the ones previously mentioned will likely need to be addressed before a loan is granted. As a result, the loan approval process can change from weeks to months given the right circumstances.  

Examples of Lender Required Repairs

It is also important to do some research about what types of lender-required repairs others have encountered in your area. In our experience with over 2500 real estate transactions in Texas, we have seen these examples all too well.

• Case Study 1: Conventional Loan Required Repairs in Plano TX
  • One of the most common lender-required repairs in Dallas, TX, is in relation to a malfunctioning HVAC system because of the danger this poses to the home and its residents. Code violations such as improper plumbing and wiring issues may also lead to the need for repairs.    
• Case Study 2: FHA Lender Required Repairs in Fort Worth
  • To secure an FHA loan in Fort Worth, the seller encountered major repairs needed such as lead-based paint removal, water-heater replacement, window replacement, or door replacement. The lead paint removal was the most costly and unexpected by the previous homeowners.
• Case Study 3: VA Lender Required Repairs in Garland TX
  • A VA loan required repairs in Garland found us fixing the crawlspace to ensure dryness or dealing with pest infestations from rodents or termites to ensure structural soundness. Light furnace heating and shingle roofing repairs were also conducted before a loan was secured.

The Cost of Lender-Required Repairs

Knowing how to estimate the cost of repairs and the effect of the repairs on a home’s value is a crucial part of the buying and home selling process.

Estimating Repair Costs

• The cost of repairs will depend on the type of repairs needed and if the seller and buyer are sharing the cost or not. Requesting quotes from different service providers for major issues is often a good approach to assessing costs, which could include factoring in the cost of labor, materials, and the time involved to make the repair.
• If it’s a major repair, it could possibly increase the home’s value beyond the cost of the repair. But… Who Pays for Repairs?
• Buyers and sellers can negotiate who will pay for the repairs. Nevertheless, the seller is typically the one who pays for the repairs. This is because the buyer can choose to buy another house. Therefore, the seller is typically the one with more incentive to pay for the repairs.
• Market conditions dictate negotiating power. When sales prices are down, this favors a buyer’s market, you will generally see the home seller covering the cost of major repairs because of the increased competition the home seller faces in a buyer’s market. But as economics would attest, when the housing market shifts to a seller’s market, you will encounter more buyers willing to cover some of the repair costs. 

Navigating Lender Required Repairs as a Home Seller

As a seller, you will want to be strategic in your approach when selling your home.

Preparing Your House For Sale

• There are many ways you can address potential lender-required repairs before listing your property. Some of these ways include the following: listing the property “as is,” ensuring that major repairs are done before you list the home, selling to cash buyers, adjusting the sale price of the home to factor in any significant repairs, and having your home inspected before putting your property on the market.
• Working with a real estate agent to ensure your home is in good condition and meets lender requirements is an important part of the process. A seasoned professional can help you navigate the confusing process of buying or selling your home, as well as the process of negotiating lender repairs or if a seller credit to buyer is warranted.
  

Selling to Cash Buyers

A popular option for homeowners in a slow housing market is sell your home as is with no closing costs or repair responsibilities to cash home buyers like Bright Bid Homes. Selling your home “as is” attracts cash buyers like us who pay cash and do not need a mortgage loan and are often unconcerned about home inspections as we plan to renovate and remodel houses to capture a higher market value. As a result, lender-required repairs are avoided.

o   Sellers may also want to be informed about cash buyers such as “Sell My House Fast” companies and real estate investors, who streamline the selling process by cutting out home inspections and lender-required repairs.  If this cash sale option is appealing to you, please call us today for a no-obligation free estimate to sell your Texas house for cash today.

Understanding lender-required repairs and how they impact real estate transactions is important because the issues surrounding these repairs can delay the closing date and increase costs for both the buyer and seller. 

If you are looking to sell your home, you will want to consult with a real estate agent or a home inspector to address necessary repairs before listing your home.

It is a good idea to prepare yourself for lender-required repairs, as this will help you to establish a budget, know what may need to be done before the home inspection, have a plan in place, and deal with the inconvenience through mental preparation.