If problems were found on the inspection...

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What do you do if the inspection turned up significant physical problems with the house? That depends on which of the protections you made sure you had in the contract, as I advised on the contract page.

If the contract has an out for lender-required repairs, and the cost of the repairs exceeds that limit.

The bank will review the inspection, and if there are significant problems the bank will say those problems have to be fixed before they'll loan the money for the purchase.  The things that have to be fixed to satisfy the bank are called lender-required repairs.  Once the bank notifies you of the lender-required repairs, have a contractor bid on the cost of making the repairs.  You can find trustworthy contractors on AngiesList.

Many contracts say that if lender-required repairs cost more than X% of the purchase price, you can cancel the contract without penalty.  So if the cost of repairs on the house you want to buy exceed that limit, you're free to walk away now.  That's the protection that the lender-required repairs clause provides.

Of course, you don't have to walk away.  You can ask the seller to make the repairs, and if they're willing to do so then you can proceed with the sale.  If the seller won't make the repairs, but you still want the house, you can ask the seller to lower the price.  If the seller refuses to budge on the price, and you really want the house, you could pay for the repairs yourself.  If you go that route, get at least two competitive bids from reputable contractors, preferably three.

All the following scenarios assume that the lender-required repairs clause doesn't apply (either because your contract doesn't have that clause, or the cost of the repairs didn't exceed the limit specified in the contract).

If you paid an option fee:

You can back out now and forfeit the Option Fee if you want.  Or you can proceed with the purchase, your choice.  Whether the seller has to fix anything depends on whether you required that in the contract.

If you didn't pay an Option Fee, and you wrote into the contract that the seller has to fix problems that were found:

The seller has to fix the problems found in the inspection that the contract requires him/her to fix, and then you'll have to buy the house.  (You can have the house re-inspected if you wish to make sure that the inspector agrees that the owner remedied the problems properly.  A re-inspection costs a fraction of the original inspection.)

If you didn't put down an Option Fee, and you didn't write into the contract that the seller has to fix anything:

Now you have to buy the house no matter what.  You could ask the seller to fix the problems, or to drop the price of the house, but they're under absolutely no obligation to do so, and if they so no, there's nothing you can do.
FHA 203k loans provide money for repairs

Banks usually want a house to be in pretty good shape before they'll loan money on it.  But with the FHA 203k program, buyers can borrow the extra amount they need for additional repairs or modernization.  For example, if a house is $170,000, and you want to do $30,000 of repairs and upgrades, you can borrow $200,000 with an FHA 203k loan.  The downside is that the interest rate will be about one percentage point higher than normal, but FHA 203k is often the only way to get a lot of money to put into the house at the time of purchase.


Amount spent so far.   Red items apply towards the purchase. Amounts are typical, not exact.

$40

Credit Check

To the Lender

$150

Option Fee

Paid to the Seller. Might apply towards purchase, depending on contract. Allows you to walk away for any reason.

$1000

Earnest Money

Held in Escrow, probably by the Title company

$400

Inspection

To private inspection company to find physical problems with house

$100

Termite inspection

To private company; required by your lender

($700)

Termite treament

(If necessary)

$1690 - $2390

Total




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