What is an Escrow Holdback?

Mortgage Funds

When pursuing mortgage financing on a home there are many variables which can come into play. One such item which may come up are repairs or work which needs to be done on the house. It doesn’t happen frequently, but it can and is mostly seen on new construction homes. This is termed an escrow holdback.

Escrow holdbacks allow a mortgage closing to occur, but money is held normally by the title company for the estimated repairs or work which needs completing. This extra money is collected at closing and held until proof of the repairs is provided or the work is completed.

Here’s an example to illustrate how it works. Let’s say a person is refinancing their home and the appraisers notes some repairs need to be done. Instead of delaying the closing the homeowner can get an estimate for the work to be done and provide to the mortgage company. Once reviewed the mortgage company approves and may ask for up to 150% of the estimate dependent on what type of loan is being provided. There may also be a stipulation on when the repairs should be completed by.

On a purchase transaction typical the escrow holdback funds come from the seller and on a refinance transaction they would come from the buyer.

Once the repairs are completed a final inspection will be ordered to ensure the work is satisfactory.

As always, work with a trusted mortgage advisor to learn more about this program.