FHA Escrow Hold-backs Work

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Phoenix Arizona FHA mortgage escrow Holdback

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.

Learn more about FHA Home Loans

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


  1. Dude, are you serious? I can’t EVEN imagine the practical implications of trying to use this strategy with a client, but it would honestly scare the daylights out of me. How do you know for sure that the FHA appraiser will ‘call out’ the particular repairs that the buyer deems important? And what if the buyer counts on it happening, but the FHA appraiser overlooks the repair item(s)? Maybe it’s just my cynical view of the appraisal process these days, so if you can ease my mind or enlighten me further on the practical aspects of escrow hold-backs, I’m all ears!

  2. Holdbacks work great when an FHA appraisal comes back with a required repair. For example, lets say your FHA buyer’s appraisal was sent in to me and the appraiser stated that in order to be in compliance with FHA guidelines the air conditoner needed to be replaced. An FHA escrow holdback allows the buyer to finance the cost of the new A/C unit into their loan amount AND it allow for the repairs to be done after closing.

    This is extremely helpful if a seller is not willing to fix the A/C unit. The escrow holdback would allow us to close prior to the A/C unit being fixed. This way the buyer does not have to put their own money at risk prior to closing AND they do NOT have to do an FHA 203k loan (provided the repairs cost less than $5,000).

    Does this help/

  3. how do you overcome FHA’s requirement that only allows an escrow holdback if the repairs cannot be completed before closing, due to inclement weather?

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