Requesting Repair Credit When Negotiating

[Jason Reynolds]

Hey everyone,

I'm in the process of offering on a house that I plan on house-hacking, so I am obtaining an FHA loan. It is rent ready, but I do plan on adding 2 bedrooms so there will be a small rehab cost. Right now we have a 6% seller assist in our offer to cover some of my closing costs. If our offer is too low, I think it would make sense to accept a higher counter price than I normally would, but ask for a 'repair credit' to be held in an escrow account to cover the cost of putting up the walls and adding the closets, etc. I think this could be a win-win scenario, seller gets the higher price they want, but I am less out of pocket and the property will still cash flow well. I am not familiar with requesting for repair credit though so would appreciate if someone who has done this could chime in.

Here are my main questions/concerns:

• Since the property is already rehabbed and rent-ready, am I allowed to ask for a repair credit for technically unnecessary repairs?

• I had read that some lenders will not allow repair credit to be rolled into purchase price. This is probably something I will just have to reach out to the banks I am dealing with about but want to see if anybody else has run into this issue.

Thanks!

[Jonathan Greene]

Why does it help the seller to get a higher price, but give the money back to you as a repair credit? The seller cares about how much money goes into their pocket, not the sale price. The higher sale price is good for the neighborhood, but it also makes it harder to appraise so you could be shooting your loan in the foot by doing that. Your purchase has to appraise for the sale price or more and when buyers try to get crafty by adding a higher price, just to get a credit it can collapse the appraisal contingency, especially right now.

Adding two bedrooms is also possibly trickier than you might think. Although you won't add square footage, it could affect your taxes when reassessed moving from a 2 BR to a 4 BR. When you are trying to structure a deal like this, it is all going to your benefit and for that to work, the property has to be bad or the owner has to be desperate.