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African American man renovating home interior.

You’re purchasing a new home, and right before you’re supposed to close, you find out something on the property needs to be fixed. Now your closing date is pushed back. Sound familiar? It happens more often than you might think. Oftentimes, after an appraisal, repairs need to be done before the close date. But what happens if you need to close sooner? You could push the closing date until the repairs are finished, or you could use an escrow holdback.

What Is an Escrow Holdback?

An escrow holdback is money set aside at the closing of a home that will be refunded once repairs are completed. Because a portion of the seller or buyer proceeds are held in an escrow account until the work has been finished, they are given an incentive to actually finish the work. Typically, the holdback amount would be more than the estimated cost of the work that needs to be completed, which further encourages the seller or buyer to finish the work on time.

How It Works

An escrow holdback ensures the seller or buyer will make the necessary changes, because only once the changes have been made will the seller or buyer recoup their money. At Quicken Loans, 120% of the bids or estimates for the repairs that need to be done are held, with a maximum holdback amount of 15% of the as-completed value.

Escrow holdbacks are not available for every type of home repair; they must be weather related. For example, repairs to a driveway, deck, fence, landscaping, porch or sprinkler system damaged by weather would be eligible for an escrow holdback. Lawn seeding and pest treatment also qualify. All repairs must be completed within 60 days of closing.

Let’s look at this example:

You’re in the process of purchasing a home. It’s not perfect, but it’s everything you want. The FHA has strict appraisal guidelines, and shortly before your home loan is supposed to close, you find out you can’t close until the seller fixes the cracks in the driveway. You don’t mind the cracks, but the FHA does. The repairs will cost around $1,000.

If Quicken Loans is your lender, you could be eligible for an escrow holdback. Quicken Loans will hold funds from the closing of the home that will be refunded once the repairs are complete. Typically, 120% of the bids or estimates are held (in this case, $1,500) to give sellers an even greater incentive to get the repairs done on time.

On most occasions, the seller is providing the funds. If the repairs end up costing more than originally anticipated, the buyer will be responsible for the extra expenses. After an appraisal is completed, the funds will be returned to their original owner.

This happens more often than you might think. You don’t have to push back the loan closing until all repairs are finished. You have options that will likely allow you to keep your closing date and still get the necessary repairs done. If you’ve found yourself in a similar situation, contact a Home Loan Expert to discuss your options today. For general questions, post in the comments.

This Post Has 10 Comments

  1. We had several repairs that where not completed upon our closing date. Our realtor had $2500 held out of escrow and said the seller had 90 days to complete the require work. It has been 90 days and the seller has made no effort to get the repairs done. What options do I have with the $2500 that is being held in escrow?

    Thanks – Bob

    1. Hi Bob:

      If you’re a Rocket Mortgage® client, I recommend speaking with our servicing team about your options at this point. We are closed for Christmas, but they can be reached tomorrow at (800) 508-0944. If you work with someone else, I recommend speaking with your servicer as soon as possible. Happy holidays!

    1. Hi Dana:

      If you have enough equity, you could look at refinancing your mortgage. This would give you the best rate. We could help you look at your options through Rocket Mortgage. You can also talk to one of our Home Loan Experts at (888) 980-6716.

      You could also get a personal loan through our friends at Rocket Loans for up to $45,000 if using your home equity wasn’t an option.

  2. If the home we are purchasing needs flooring and some minor plumbing repairs, does that qualify under escrow holdback. Thank you

    1. Hi Susan:

      Interior repairs like the flooring and plumbing are not eligible to be handled through an escrow hold back. Typically, an escrow hold back deals with minor exterior repairs. I’m sorry.

  3. Hello,
    If I had an escrow hold back for repairs being done by the association, and they are about finished, how much is it for quicken to send the appraiser out to check that the repairs have been completed, how much of that is deducted from the amount you will be returned once repairs are deemed acceptable?

    thanks in advance,

    1. Hi Ashley:

      I’m going to get this to our Client Relations team to give you the information you’re looking for. Have a great day!

  4. I sold my home. The buyer had an change loan. I did an escrow holdback agreement because of exterior peeling paint. The buyer would do the work. He had till May 28th to get it done, but hasn’t done the work. Do I have any recourse?

    1. Hi Coral:

      I’m assuming you mean an exchange loan. Unfortunately, we don’t do these, so I can’t really tell you what your recourse would be. My advice would be to talk to the lender. They would be able to give you guidance.

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