HUD Home Purchasers Obtaining FHA Financing FAQ

Information for purchasers that are obtaining FHA financing for a HUD home:

WHAT ARE (IE) REPAIR ESCROWS ON FHA INSURABLE PROPERTIES?

If a property is offered as FHA insurable with a repair escrow, the amount of that escrow will be added to the buyer’s mortgage.  It is NOT a gift or seller credit at closing.  The buyer may not pay it in cash at closing, nor may it be eliminated or reduced.  It can only be increased up to $5,000 (including a 10% reserve) by a lender-ordered FHA compliance/mechanical systems inspection.  Buyer must provide proof of loan qualification for the purchase price and the repair escrow amount.

 

DOES MY BUYER HAVE TO USE HUD’S FHA APPRAISAL?

If the buyer is financing the property with a FHA insured mortgage, a valid contract must be ratified within 120 days of the appraisal effective date, or the buyer must pay for a new appraisal or an appraisal update. However, be clear, a second appraisal may NOT be ordered simply to support a purchase price that is higher than the value of the current appraisal. A second appraisal can only be ordered by the Direct Endorsement (DE) underwriter if there are material deficiencies with the current appraisal or the current FHA appraisal will not meet HUD’s 120 day appraisal effective date.

 

WHAT IF MY BUYER BIDS OVER THE FHA APPRAISED VALUE?

When obtaining FHA financing, any purchase amount over the current, FHA appraised value must be included in the cash to close due from buyer upon closing.  It may not be financed into the loan.  Further, buyer must submit proof of cash for the entire amount offered over the FHA appraised value with their original sales contract package.

 

WILL HUD PAY FOR A TERMITE (WDO) REPORT & LEAD BASED PAINT EVALUATION?

Only when owner occupants are obtaining FHA financing will HUD provide both a termite (wdo) report and LBP stabilization assessment – free of charge – to the buyer. If the termite report is not dated within acceptable lender guidelines, it will be the responsibility of the buyer to pay for an updated termite (wdo) report. HUD does not, however, pay to remediate any wood rot or any other type of damage caused by previous or current, live infestation. In these cases, the buyer will have the option of cancelling the contract or they may obtain estimates for the purpose of establishing a repair escrow (which will be added to the buyer’s loan) to remediate the damage after closing.

If LBP stabilization assessments of homes constructed before 1978 reveal remediation costs up to $4,000, HUD will ensure that the remediation is complete before closing at HUD’s expense. If the stabilization exceeds $4,000, HUD (at their discretion) will cancel the contract or allow the buyer to change their FHA financing to a loan program, such as the 203k or streamline loans, to finance the remediation into their loan. The buyer and/or lender may not waive the LBP stabilization evaluation.

 

Please Note:

This page is only a general overview of HUD’s policies and procedures and it should not be considered to be all inclusive or absolute.

To read more detailed information about HUD’s policies and guidelines, as well as additional stipulations of HUD’s asset managers, please visit our website in the Customer Service section for a downloadable handbook for your state.

A COMPLIMENTARY review of all HUD contract packages is offered 7 days a week.
Simply email your fully executed contract package to ReviewMyHUDPackage@100REO.com