Unlocking the Potential: Exploring Escrow Holdback in Virginia’s Finance Landscape

October 9, 2023

Does VA Allow Escrow Holdback?

Escrow holdback is a common practice in real estate transactions that allows funds to be held in escrow to address certain issues or repairs that need to be completed after the closing of a home purchase. This mechanism provides an opportunity for buyers and sellers to negotiate and reach an agreement on how to handle repairs or improvements that may be required before the buyer takes possession of the property.

When it comes to Department of Veterans Affairs (VA) loans, it’s important to understand the specific guidelines and regulations regarding escrow holdbacks. VA loans are backed by the U.S. Department of Veterans Affairs and are designed to help eligible veterans, active duty service members and surviving spouses become homeowners. These loans have specific requirements and guidelines that determine whether or not an escrow holdback is allowed.

VA Loan Guidelines

VA loans have a set of guidelines that borrowers and lenders must follow, and these guidelines apply to escrow holdbacks. VA guidelines state that escrow holdbacks are generally not allowed for repairs or improvements that are necessary for the property to meet the VA’s Minimum Property Requirements (MPRs). The MPRs ensure that the property is safe, structurally sound, and meets certain habitability standards.

According to the VA, any repairs or improvements necessary to meet the MPRs must be completed before the loan can be closed. The VA requires lenders to certify that the property meets the MPRs, and any necessary repairs or improvements must be completed and inspected before the loan can be approved. This means that in most cases, escrow holdbacks for MPR-related repairs are not allowed for VA loans.

Exceptions to the rule

While escrow holdbacks for MPR-related repairs are generally not allowed for VA loans, there are some exceptions to this rule. The VA does allow escrow holdbacks for certain non-MPR repairs or improvements that do not affect the habitability or safety of the property. These non-MPR repairs are typically cosmetic or minor in nature and do not affect the structural integrity or functionality of the home.
For example, if a home needs new carpeting or paint, these types of cosmetic repairs may qualify for an escrow holdback. It’s important to note, however, that the repairs must be considered minor and not affect the livability of the property. VA and the lender will evaluate each case individually to determine if an escrow holdback is appropriate.

The Escrow Holdback Process for VA Loans

If an escrow holdback is deemed appropriate for a VA loan, the process typically involves several steps. First, the buyer and seller must agree on the repairs or improvements that will be addressed through the escrow holdback. This may require obtaining estimates from contractors or professionals to determine the cost of the repairs.

Once the repairs are agreed upon, the lender will include the escrow holdback amount in the loan documents. The funds for the holdback are usually held in an escrow account until the repairs are completed. The lender may require documentation, such as receipts or invoices, to verify that the repairs have been made.


While escrow holdbacks for MPR-related repairs are generally not allowed for VA loans, there are exceptions for certain non-MPR repairs or improvements. It’s important for borrowers and lenders to carefully review VA guidelines and work together to determine if an escrow holdback is appropriate for a particular situation. Consulting with a knowledgeable real estate agent or loan officer who has experience with VA loans can also be beneficial in navigating the process and ensuring compliance with VA regulations.

Keep in mind that VA loans are subject to change, and it’s always best to consult the most up-to-date guidelines and regulations from the Department of Veterans Affairs or speak with a qualified professional for personalized advice regarding escrow holdbacks for VA loans.


Does Va allow escrow holdback?

Yes, the VA (Department of Veterans Affairs) does allow escrow holdbacks under certain conditions. An escrow holdback is a provision in a real estate transaction where a portion of the sale proceeds is held in an escrow account until certain repairs or improvements are completed.

What are the conditions for a VA escrow holdback?

To be eligible for a VA escrow holdback, the repairs or improvements must be minor in nature and not affect the livability, safety, or structural integrity of the property. The cost of the repairs or improvements should also not exceed 10% of the appraised value of the property.

How does a VA escrow holdback work?

When a VA escrow holdback is approved, the funds for the repairs or improvements are set aside in an escrow account. The seller and buyer agree on the terms and conditions for completing the repairs, including a timeline. Once the repairs are completed, the funds are released from the escrow account to pay for the work.

Are there any limitations on VA escrow holdbacks?

Yes, there are some limitations on VA escrow holdbacks. The repairs or improvements must be completed within 90 days of the loan closing. Additionally, the holdback amount cannot exceed 150% of the estimated cost of the repairs or $5,000, whichever is less.

Is a VA escrow holdback available for all types of VA loans?

No, a VA escrow holdback is not available for all types of VA loans. It is typically available for VA purchase loans and VA renovation loans, but not for VA streamline refinance or VA cash-out refinance loans.

How can I request a VA escrow holdback?

If you are interested in requesting a VA escrow holdback, you should discuss this option with your lender during the loan application process. Your lender will guide you through the specific requirements and procedures for requesting and implementing an escrow holdback.