Lender required repairs must be corrected by the seller before the mortgage bank will fund the buyer’s loan.
Many people know that a lender might demand repairs for obvious problems such as damaged roofing or cracked foundations but they can also require other items such as siding, windows or doors–even crawl spaces be fixed before they will sign off on a loan.
The FHA for instance, is notorious for demanding a laundry list of repairs before they will issue a mortgage.
Click here for more info on FHA loan requirements.
Click here for more info on VA loan requirements.
Basically, a lender can insist any type of repair they deem important enough for the safety and stability of the property become a required repair. They are protecting their investment over the life of the loan.
If the buyer defaults on the loan, they have to know that the property is in good condition and can easily be resold to recoup as much of their loss as possible.
If a lender becomes aware that the home has unapproved editions, they are very likely to demand that they be corrected before they will release any kind of funding.
For example, if a homeowner has converted a garage into a bedroom without getting the proper city permits, they may find themselves converting it back into a garage or having to wait for a cash offer.
“If the Property does not satisfy the lender’s underwriting requirements for the loan(s) (including, but not limited to appraisal, insurability and lender required repairs), Buyer may terminate this contract by giving notice to Seller prior to closing and the earnest money will be refunded to Buyer”
-Section 4 (TREC) One to Four Family Residential Contract
A seller may agree to pay for the necessary repairs or they may decline, choosing instead to look for a cash buyer.
Cash buyers are not protected by Section Four of the Standard 1-4 Residential Contract and need to understand that they are essentially buying a property “as is” unless they negotiate a deal that says otherwise.
Either way, no lender is going to risk loaning money on a property that has significant damages or that does not appraise for the sale price.