Will the Lender Make You Fix That? Repairs, Appraisals and Point-of-Sale in Northeast Ohio

I hear it from buyers and sellers all the time: "The buyer is going FHA, so the house has to be perfect." That isn't quite how it works. And on the flip side, a conventional loan doesn't mean anything goes.

At a recent Tuesday training, Amber Gowdy, CEO, and Michelle Massucci, COO, of Liberty Home Mortgage in Independence explained when repairs become a financing problem. Here's what sellers and buyers should know before the appraiser shows up.

The rule of thumb: safety, soundness, habitability

Michelle summed it up simply. No matter the loan type, the lender cares about three things: safety, soundness and habitability.

A big hole in a ceiling from an old roof leak is a problem no matter how the buyer is financing. So is a serious fall hazard. Cosmetic items, like dated carpet or an old kitchen, usually aren't. If you keep those three words in mind, you'll be right most of the time.

Conventional loans can require repairs too

The guests shared an example from a split-level home with a conventional loan. Inside the front door, you walked up the steps into the living room, and there was no railing along a drop of about six feet.

The appraisal came back "as is," but the lender still required a railing. People asked why, since a handrail is usually thought of as an FHA issue. The answer was simple: a six-foot drop is a safety issue, and the lender gets to make that call. Nobody wants a family to move in and have an accident. It was an easy, inexpensive fix that kept the deal on track.

And once an appraiser calls out a required repair, Amber said there usually isn't much room to argue. Unlike a low value, which can be challenged, required repairs generally have to be done. The real question becomes who does the work and pays for it, which is something the buyer and seller negotiate. Settling that quickly keeps the closing date intact.

When the appraiser suggests an inspection

Appraisers aren't home inspectors or engineers, but they do note what they see. Amber said they've seen a lot of damp basements lately. If an appraiser writes that a basement looks unusually damp and suggests a foundation inspection, the lender generally has to follow that suggestion, even if the appraisal itself is "as is."

For sellers, that's a good reason to deal with obvious water issues before you list. Clean the gutters, extend the downspouts, fix the grading and get ahead of anything that looks like an active problem.

FHA and older homes: the paint rule

FHA does have some rules of its own. One of the best known involves paint. For homes built before 1978, the appraiser has to note defective paint, like peeling or chipping, and require it to be repaired, according to FHA.com's summary of the HUD rules. That ties back to lead-based paint, which was banned for residential use in 1978.

If you're selling an older home and expect FHA buyers, scraping and repainting failing areas before you list can save a delay later.

Point-of-sale inspections: talk to the lender early

Many Northeast Ohio cities require a point-of-sale inspection, and some require violations to be fixed or escrowed before title can transfer. The guests said they've seen a lot of transactions affected by this lately.

Whether you're buying or selling, find out the city's rules early. The Akron Cleveland Association of Realtors point-of-sale guide is a good starting point. Then make sure your agent and lender talk about it up front, so required repairs, escrows and timing are part of the plan instead of a surprise the week of closing.

Keep repair information accurate and coordinated

One more story from that day. An appraisal came back "subject to" a septic repair because the agent had mentioned that work was planned after a point-of-sale septic inspection. Once a repair is written into the appraisal, the lender needs proof it was completed before closing, which can affect the timeline.

The lesson isn't to hide anything. Disclose what you know, honestly. But details about repairs should be accurate, confirmed and coordinated between the agents and the lender, so plans and guesses don't end up in the appraisal as conditions.

A pre-listing checklist for sellers

• Fix trip hazards, missing handrails and open drops.
• Repair active leaks and water stains, and address any damp areas.
• On pre-1978 homes, handle peeling or chipping paint.
• Learn your city's point-of-sale rules and order the inspection early if one is required.
• Make sure utilities are on and every area of the house is accessible for the appraiser.

Getting ready to buy or sell?

Repairs are much easier to handle before a deadline than during one. If you want help sorting out what a lender is likely to require on a specific home, schedule a time with me or someone on our team at 21mike.com.

For mortgage questions or financing guidance, get in touch with Amber Gowdy, CEO, at 330-714-0831 or Michelle Massucci, COO, at 440-813-6280 at Liberty Home Mortgage.

Want to see the full session? Watch our Tuesday training with Liberty Home Mortgage.

Mike Ferrante
The Mike Team at LPT Realty
www.21mike.com
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