How to Handle Home Inspection Credits
If you're reading this then you must have made it through the initial milestone of having an offer accepted! Whoo-hoo! Congratulations!Now, don't start packing up yet. There's another major milestone and negotiation to go; your home inspection! In Virginia you have a standard 7 days per your contract to complete a home inspection. Your real estate agent may have written in a longer inspection period but the standard time is 7 days.
The inspector is going to look at the house from top to bottom and let you know about the condition of the home you’re about to buy. Sometimes, you hit the jackpot and the inspector doesn’t see much wrong with the home. Other times, you may get a little longer report to review and have some items you need to request repairs on. Some people feel intimidated by going through another round of negotiations but it's just part of buying a home.Often, your agent is going to ask for certain items to be be repaired or replaced that come recommended by the inspector so that you don’t have to worry about that once you move in. But what if the seller doesn’t have the time to do these repairs before your set closing date? What if they’re trying to buy another home and that is taking up a lot of their time as well? There's a third option available to you! If the seller doesn’t agree to do the repair, they will often offer you a “seller credit” where instead they are going to give you money at closing for you to do the repair once you officially own the home! If you're handy or prefer to find and vet your own contractors this can be a great solution to a repairs request. This can help you keep more money in your pocket as those credits get applied to closing costs, points and/or pre-paids. There is a potential catch though.It is great that you will have to bring less to closing if the sellers offer you a credit for the repairs but you have to be careful about how much you can accept in closing costs. You may have already asked for X amount with the initial contract, i.e. you asked the seller to cover some or all of your closing costs. Some loans only allow you to accept a certain percentage of your purchase price from the seller so you need to make sure that you are in touch with your lender to find out exactly how much you have in closing costs so that you aren’t negotiating TOO much “seller credit” in the second round of negotiations. If you have too much credit for what your actual closing costs are, you could end up losing that money you worked so hard to negotiate.Now, this isn’t the end of the world, because there are some tricks lenders have up their sleeves to make it work, but this is certainly a case-by-case scenario.Like I mentioned before different loan types only allow you to ask for certain percentages to go towards your closing costs. See the rules below on common loan types and how much you can be credited:
- Conventional Loans - if you put less than or equal to 5% down on a home, you are limited to asking 3% of your totalsales price of the home. For example: $100k home means you are limited to $3k in seller credit.
- FHA Loans - no matter your down payment, you can ask for up to 6% of the total sales price in sellercredit. However, you will hardly (if ever) have a total of 6% closing costs, so be sure to checkwith your lender on total figures!
- VA Loans - Allows you to have up to 4% seller credit negotiated on your behalf. However, there aresome extenuating circumstances where you can ask for more!
I hope this helps you understand a bit more about the Home Inspection negotiations and howyour lender will play an important role in that part of your purchase.
Happy Hunting,
This content was written and provided by Maddy Armstrong of Southern Trust Mortgage. If you have additional questions please reach out to her, a preferred lender, or your local loan officer.