FHA Escrow Hold-backs Work

Home-buyers use FHA Escrow Hold-backs to fund appraiser required repairs.  In fact, an FHA Escrow Hold-back often saves an Arizona FHA buyers time, energy and money compared to an FHA 203k loan.

What is an FHA Escrow Hold-back?

An FHA Escrow Hold-back sets money aside for the purpose of completing property repairs after funding.  The “Hold-back” part refers to the buyer’s FHA mortgage lender keeping funds in their possession post funding.  Those funds are ear marked for specific repairs to be completed post closing.

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An FHA appraiser must list required repairs on their appraisal in order to use an FHA escrow hold-back.   FHA appraisers call out repairs on their appraisal reports when the subject property violates FHA’s minimum property standards.  Unfortunately, FHA escrow hold-backs cannot be used for buyer desired or cosmetic repairs.

FHA Escrow Hold-backs – 5 Steps

FHA Escrow Hold-backs involve 5 primary steps.  They are:

1. Appraiser notes required property repairs on their FHA appraisal
2. FHA buyer selects a contractor to conduct repairs
3. Contractor submits bids for repairs to buyer’s FHA lender
4. Buyer’s FHA lender reviews contractor, bids and scope of the overall work
5. Upon approval FHA Escrow Hold-back repairs occur post-closing

FHA Escrow Hold-back Funds Paid to Contractors

FHA Escrow Hold-backs enable FHA buyers to finance repair costs instead of paying out of pocket. However, contractors still need funds to begin and complete all work.  During an FHA Escrow Hold-back, lenders periodically wire funds directly to contracts as they request funds for materials and labor.

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By Jeremy House