September 7th, 2018
Sellers are often reluctant or simply unable to pay for repairs or improvements to a home prior to closing. Likewise, a buyer may lack the means or the will to pay for work on a home he has yet to call his own. To keep both sides of such deals satisfied, lenders can offer escrow holdbacks. An escrow holdback means money set aside to o fund the purchase or a home improvement loan, and gradually release repair funds as work is completed.
The Alpine Team Mortgage lender can finance construction of new homes or improvements to existing homes. An escrow holdback for a construction loan involves the lender holding back the portion of the loan allocated for specific projects via an escrow account. The lender retains the funds and releases them to pay contractors when it is satisfied with the work and receives proof that all subcontractors have been paid for their work. The lender establishes the holdback amount based on contractor bids and retains a cushion above the estimated costs to cover unexpected expenses that may arise.
A cash-strapped home seller may fund repairs necessary to close a deal using proceeds from the sale. When the transaction closes, the escrow holder retains an amount specified by the provisions the buyer and seller agree to in the sales agreement. Sellers may prefer an escrow holdback arrangement because it allows them to sell despite property defects and without having to pay for the work up-front or oversee its completion. Depending on the buyer's financing, an appraiser may have to formally report the work that is needed in order to request a holdback.
Mechanics Liens and Holdback
Mechanics Liens allows contractors, subcontractors and materials suppliers to place a lien, or claim, against a home's title for un-reimbursed fees. The homeowner is responsible for paying all parties that service his renovation or construction project, and risks a mechanic's lien if he fails to pay. Lenders protect their interests in financing construction and home improvement projects by padding the escrow holdback account and by ensuring that all contractors have paid subcontractors before releasing escrow holdback funds.
Contact our team today for more information.