Mortgage Terminology: Escrow Holdback


Escrow Holdback Explained

What Is An Escrow Holdback?

Many times home buyers may run into situations where a real estate home appraiser may not pass a home appraisal due to repairs being needed on the subject property and repairs needing to be done due to safety factors. In a home seller’s market like many parts of Illinois, California, Florida, Texas, Georgia, Michigan it is not very likely that the home seller will be agreeing to be making any home repairs that is needed. If the home buyer does have enough funds, the mortgage lender may allow an escrow holdback. What is an escrow holdback? An escrow holdback is when money is held back and kept by the title company at closing to cover the cost of the home repairs that will be needed. The home buyers needs to deposit funds with the title company where the funds are held by the title company even after closing and released when the repairs are completed and an inspection is done after the completion of the work and then the title company releases the funds.

How Escrow Holdback On Repairs Work?

The way escrow holdback on repairs work is that the home buyer will need to get bids from licensed general contractors and submit those bids by contractors to their mortgage lender. The mortgage lender will then review the contractor bids and will make a determination on the amount of money will be needed to be held back as escrow holdback. Most escrow holdbacks are normally 1.5 times the amount of the contractor bids.

With most of escrow holdback, the home repairs is expected to be done fast and as soon after the home closing. The repairs should not take more than two to three weeks after the home closing. The homeowner needs to provide billing statements of the work done and/or repairs performed as well as a final lien waiver stating that the job was paid in full by the general contractor.

After the home repairs are done, the home appraiser is then sent back for a home appraisal re-inspection to verify and certify that the work has been completed and sign off on the repairs. The home appraiser will then provide and submit a completion report and update home appraisal report to the mortgage lender, often referred to as a form 442 and the mortgage lender will instruct the title company to release the escrow holdback and pay the funds to the general contractor and/or general contractors in full and pay the balance remaining to the homeowner.

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