Just after your offer is accepted the wheels begin to turn at your VA lender’s office. But while the lender is full speed ahead with your loan application it’s still not a done deal—you need to make sure the property is in the shape the seller says it’s in by having an inspection performed by a licensed property inspector. Yes, there is a Seller’s Disclosure that lists all the things that may need attention but the inspector will not only confirm that disclosure but perhaps discover other issues the seller may not have known about. What happens if you do find something that needs repair?
That depends upon the degree of the issue. Is it a light switch that doesn’t work? You can probably live with that and the seller can easily fix it for you. But what if the HVAC system doesn’t work and the inspector says the A/C needs replacing to the tune of about $5,000? The seller can reduce the sales price by that amount or contribute up to $5,000 in closing costs but in this situation the A/C needs fixing before the closing can take place. Sometimes the seller agrees to take care of the issue but not in a way the VA lender will agree to—a $5,000 repair allowance at closing.
A repair allowance at the closing table is often a surprise to the lender. The initial sales contract had nothing regarding any allowance and when the final settlement statement is drawn the lender won’t allow it. Why not? Because a $5,000 credit is essentially cash to the buyer which isn’t allowed. The lender can’t verify the repairs were ever made. There are three options here and they don’t include a repair allowance. Reduce the sales price, pay for closing costs or make the repairs before the closing takes place.