What are my options if the home inspector finds a major problem?
Bad news from the home inspector has the potential to slow down or even halt your purchase. This is even truer if the problem requires an expensive fix, such as foundation or roof problems. But, don’t panic. There are several ways we can approach this, one of which may just save the deal.
Ask the seller to make the repairs
Our first option when faced with major repair or replacement costs is to ask the seller to make the repairs before the close of escrow. The seller may not agree to this but it wouldn’t be wise. If you were to walk away from the purchase he would be forced to put the home back on the market. That’s a hassle in itself but consider this: Since he is now aware of the problem he is forced, by law, to disclose them to the next person that wants to purchase the home. If his listing agent is smart, he or she will tell him this and advise him to make the repairs.
Ask the seller for a credit
If the seller refuses to make the repairs before the close of escrow, consider asking for a credit so that you can hire someone to do the work after you move in. There are several caveats to this option, however. If you’re using an FHA-backed loan to purchase the home you are only allowed to ask for 6 percent of the sales price as a credit. On the other hand, if the work is extensive, FHA may require that it be done before closing.
Conventional loan allowable credits usually depend on the amount of the down payment for the loan.
Amend the contract with a lower price
A third option is to amend your offering price by deducting the cost of the repairs. Your first step in this process is to get a bid from a contractor for the exact amount of money it will cost to fix or replace whatever is defective. Once we have this figure, I’ll file an amendment to the contract, lowering the offering price to reflect that cost.
Although you’ll be paying less for the home, this option leaves you on the hook financially for the repairs. For instance, the average Southcentral homeowner spends between $5,500 and $7,000 to fix or replace a roof, according to HomeAdvisor, so whether or not you can choose this option depends on where you stand financially.
Consider as well the disruption that the repairs will cause to the enjoyment of your new home. Although only temporary, many homebuyers prefer homes that are in move-in condition specifically to avoid this type of disruption.
Switch your financing to a rehab loan
If you’re using a Federal Housing Administration (FHA)-backed loan, ask your lender if you can switch to the 203k program, which rolls the cost of repairs into the mortgage. You may need to amend the purchase agreement with a new closing date because the 203k loan requires significant time to prepare. Because this program slows down the transaction process, this is only a valid option if you're highly motivated to purchase the home, the seller isn’t in a hurry and your lender is approved to provide the 203(k) program loan, said Kris Stephens, a lender with Residential Mortgage in Anchorage.