Explore your mortgage options
There’s a lot that goes on during the home buying process, and one of those things is usually a home inspection. If foundation issues are uncovered, it can hamper your ability to get approved for a loan and might even hurt your home’s resale value.
But you’ve got options. We’re here to help you figure out when to move forward with buying the house and when to walk away from foundation issues.
What Are Foundation Issues?
During a home inspection, a professional will perform a foundation inspection to check for any signs of foundation damage. They’ll look for things like mold, moisture, cracks, gaps, water damage, window and/or door problems, bowing basement walls (read: the wall bulges inward), sinking walls or sloping floors (more on these later).
Any foundation problems discovered during a home inspection must be disclosed by the seller during the buying process. Ask the seller if they are aware of any issues and have them show you any home inspection reports that have already been completed.
Some states operate on the principle of caveat emptor. That’s Latin for “let the buyer beware.” In these states, sellers may not have to disclose anything.
If foundation issues weren’t discovered until after closing, buyers are usually responsible for the repairs unless the seller intentionally tried to hide them. In that case, the seller may be liable for payment of damages and/or repairs depending on your state. Consult a real estate attorney to see if you can take legal action.
How Do Foundation Problems Happen?
Foundation problems happen for different reasons such as:
- Drainage problems: These problems can result in water damage due to poor soil conditions, houses built in swampy or low-lying areas, not grading the ground around the foundation properly or gutters and downspouts that have been poorly placed or clogged.
- Soil problems: Certain types of soils can easily expand. Building a foundation on unstable soil can result in major foundation issues down the road, like foundation settling or sloping.
- Bad construction: A foundation can be damaged if the contractor building the foundation doesn’t test the soil and build accordingly or if the foundation itself wasn’t poured correctly.
- Older homes: Although building materials are meant to stand the test of time, some older homes may have been built using materials that aren’t as structurally sound as the materials used today.
These problems can cause other structural problems, which may lead to basement repair, crawl space repair and even general house structure repairs.
Minor vs. major foundation issues
While foundation problems sound scary, they don’t always spell disaster for the people living in the home. Most of the time, it’s the side effects of foundation issues, like mold and pests, that cause more harm.
Minor problems – like small cracks in the foundation and ceilings, moisture or signs of water – aren’t always urgent issues, and they can usually be repaired quite easily.
However, there are some major problems you should be aware of.
- Gaps: Gaps between walls and ceilings and door or window frames and the walls can be signs of a shifting foundation.
- Large cracks: Large cracks might signal that there is a lot of foundation shifting happening. Pay close attention to horizontal foundation cracks and cracks that look like a staircase in brick foundations. These cracks can let a lot of water in.
- Bowing or sinking walls: Bowing walls and sinking walls (read: the wall is lower and not level on one side) usually mean that significant damage has occurred, and more structural damage will occur if not addressed properly.
- Sloping floors: These are fairly common in old homes. So it doesn’t always mean foundation problems are the culprit. However, it could also mean a foundation problem has turned into a structural problem.
No matter how big or small the problem is, get it fixed. Ignoring foundation problems may cost you more in the future.
How Much Does a Foundation Repair Cost?
Depending on the issue, the cost of repairing a foundation can vary significantly.
Something as small as a minor foundation or wall crack can cost a few hundred dollars to repair. Something as large as major water damage or a foundation replacement can cost thousands or tens of thousands of dollars.
Paying for a foundation repair is an investment in the longevity of a home. Getting the work done right by qualified professionals will ensure the safety of a home for years to come.
But is it a good idea to invest and buy a house with a repaired foundation?
Buying a house with a repaired foundation can be a good investment depending on the structural stability of the home and if additional repairs may be needed in the future.
It’s important to speak to the seller about the foundation issue, how it was repaired and who repaired it.
If the foundation repair was completed correctly, it shouldn’t need more repairs. To be on the safe side, ask if there’s a warranty on the repair. Existing coverage may save you from spending hundreds or even thousands of dollars in the future if something goes wrong.
Get the pros to work on it
Regardless of when you discover a foundation issue, hire a professional to do the repairs.
And while you may appreciate an offer to fix the issue for free from your family’s self-proclaimed Chip or Joanna Gaines, a professional will know exactly what to do every step of the way and make sure nothing is missed or repaired improperly.
What Can I Do As a Buyer?
It can be harder to get a mortgage on a house with foundation problems. Usually, the lender will want repairs made before approving a mortgage and moving forward with closing.
With a conventional loan, it might be easier to secure a mortgage because its property requirements aren’t as strict. If you’re applying for a government-backed loan, it may be harder to get a mortgage because there are fairly strict requirements around the stability and safety of homes.
Either way, let’s take a look at your options if the house you want to buy needs a foundation repair.
If you decide to move ahead after foundation issues are discovered, try to negotiate terms with the seller and your lender. Working with a real estate agent can be very helpful during negotiations.
What to negotiate with your seller:
- Selling price: Negotiate a lower sale price for the home to offset the cost of repairs.
- Seller pays for repairs: Ask the seller to pay for the repairs before or at closing.
What to negotiate with your lender:
- Escrow holdback: An escrow holdback (or repair escrow) is when a lender collects extra funds at closing to use toward minor property repairs. The money is held in an escrow account and refunded once repairs are made and approved. Typically, the seller funds an escrow holdback.
If you can’t negotiate with the lender or seller, try other options that may help move the home buying process along.
If you and your lender agree the foundation can be brought up to standards by investing in repairs, you may qualify for a loan that combines the home’s purchase price with the renovation or repair costs in one loan.
- The Federal Housing Administration (FHA) offers a 203(k) rehab loan program.
- The Department of Veterans Affairs (VA) may allow buyers to use a purchase loan for renovations.
- Fannie Mae HomeStyle® Renovation loans and Freddie Mac CHOICERenovation® loans help with homes in need of renovations, repairs and energy updates.
When to walk away
Negotiating terms for foundation repairs is a great option, but sometimes, it might be best to walk away. If you’re a first-time home buyer, a major foundation repair may be a lot to take on.
Walking might be a better option if:
- The seller won’t pay for repairs or negotiate a lower sale price.
- You aren’t willing to commit to the terms your lender requests (like specific repair conditions).
- The repairs are too expensive.
- You can’t wait for the repairs to be completed.
If your sales contract included a home inspection contingency (a clause that allows buyers to make their purchase offer based on inspection results) and foundation issues were discovered during the home inspection, you should get your earnest money back if you decide to walk away.
If your purchase offer was a no-contingency offer, which might happen when the housing market is hot, you likely won’t get your earnest money back unless you can prove the seller tried to hide the foundation issue in a state where a seller’s disclosure is required.
Having a clear picture of what you’re willing to invest, how much and what you’re willing to give up can help you decide which course of action is best for you.
Don’t Panic, But Don’t Ignore It
Buying a house with foundation repairs can be risky depending on the damage. You’ll want to do some research before signing on the dotted line. Your lender will certainly be doing their own reading.
Your lender will identify the risk they may take on if a property needs repairs. Depending on their findings, your lender may want you to negotiate or pay for repairs, or they may deny the loan.
No matter what problems are discovered, don’t panic because there’s always a solution. You, the buyer, have the choice to move forward with repairs or walk away.
If you’re in it to win it and a foundation repair is needed, don’t ignore it. Your future self and your lender will be grateful in the long run.
Rising rates? No thanks.
Lock in your rate for 90 days with RateShield®. Make your moves on your time – no panic necessary.
RateShield® Approval is a Verified Approval with an interest rate lock for up to 90 days. If rates increase, your rate will stay the same for 90 days. If rates decrease, you will be able to lower your rate one time within 90 days.
Please contact your Home Loan Expert for additional information. This offer is only valid on 30-year FHA, VA and conventional purchase loan products. RateShield® Approval is not eligible for clients with a signed purchase agreement, on Charles Schwab loans or new construction loans. Additional conditions and exclusions may apply.
The Short Version
- Buying a house with foundation repairs can be risky depending on the damage. You’ll want to do some research before signing on the dotted line
- It can be harder to get a mortgage on a house with foundation problems. Usually, the lender will want repairs made
- Buying a house with a repaired foundation can be a good investment depending on the structural stability of the home and if additional repairs may be needed in the future
U.S. Department of Housing and Urban Development. “The Section 203(k) Rehab Loan Program.” Retrieved January 2022 from https://www.hud.gov/sites/documents/2005-09FHA.PDF
U.S. Department of Veterans Affairs. “Purchase Loan.” Retrieved January 2022 from https://www.va.gov/housing-assistance/home-loans/loan-types/purchase-loan/
Fannie Mae. “HomeStyle Renovation.” Retrieved January 2022 from https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homestyle-renovation
Freddie Mac. “CHOICERenovation® Mortgages.” Retrieved January 2022 from https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/choicerenovation