Selling your house is a long, stressful process. One of the steps that almost every homeowner will go through during the process is having their home inspected. If you’re selling your home to someone who is using traditional financing methods, such as a conventional or FHA mortgage, these inspections are generally required by the bank issuing the loan. The thing to remember is, any home inspector worth their salt is going to find something to include in their report. Most of the time these will be minor issues. However, homeowners can get caught off guard when an inspection finds a major issue that prevents the mortgage from being processed.
FHA and Conventional Loan Red Flags
Even though the home inspector will provide the buyer with a report of any issue with your home, there are only a few major issues that have the potential to prevent the loan from being processed. Generally, these are issues that are considered to make the home unsafe or cause significant damage to the home if not fixed.
Some of the components and issues most likely to cause a house to fail inspection include:
- Water Heater
- Lead Paint
Next Steps After a Failed Inspection
If your home has failed inspection for any reason, there are a few options available.
Option 1 – Pay to Have the Issue Fixed Yourself
The best option, whenever possible, is to simply remedy the issue before closing by paying for the repair. Some issues, like a new water heater, are relatively cheap compared to the other costs associated with selling your home. Other issues, like a leak in the water line coming into the home, can cost thousands of dollars to fix. So what do you do if you can’t afford to fix the problem? See option 2.
Option 2 – Offer Credit for the Buyer to Repair
Selling your house is already expensive. Many times homeowners simply don’t have thousands of dollars to put into repairs prior to closing. In this situation, a homeowner can ask the buyer to complete the repairs in exchange for a credit or reduction in the purchase price if the buyer has approval with their lender. Certain loan programs like the FHA 203K allow buyers to fix major issues after closing. While this program adds additional hurdles for the buyer, it may be a great way to ensure their loan is processed and you close on the sale of your home.
Option 3 – Look for Cash Buyers
The main reason homes fail inspection is because banks require every major home component to be in great shape. If your home isn’t in mint condition and you and the buyer cannot negotiate a way to remedy the problem, the next best step may be to consider finding an all-cash buyer.
Because cash buyers don’t use bank financing, they likely won’t mind fixing a roof after closing. Just remember that cash buyers will likely expect a discount for their willingness to address these issues themselves. But if your home has failed inspection and you aren’t able to pay for repairs, this can be a great option. Cash buyers are also known for their ability to close quickly, meaning you may end up closing faster than you would have by sticking with a traditional home sale.