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FHA 203 (b) repair escrow?

Licensed Real Estate Agent

Winston Salem, NC

January 27, 2009

Can anyone tell me how the repair escrow works on the purchase of a HUD foreclosure home bid? My client has been awarded the bid on a HUD home for $115,000.  There was a $3800 escrow for carpet. You cannot add this amount to the loan for financing. I guess the only way to solve this is to have the client pay into the escrow with cash and get the work done after closing? Anyone with experience with this type deal, please give me your insight. The HUD purchases that I have been an agent for in the past were "cash" deals. It appears that it would be wise for me to stick with only "cash" deals in the future.

Greg Beckwith, e-PRO, REALTOR
Ross Realty
Ph 336-788-9675
FAX 336-785-2517
Mobile 336-918-7801
email Greg@BeckwithTeam.com

Licensed Real Estate Broker

Mooresville, NC

January 27, 2009

Yes, On 203k your client must pay that upfront at closing on top of their down payment, get the repairs completed and then the appraiser will come back out and verify the work has been completed. It will then go back to the back and HUD were it normally takes approx. 14 days or so get your money refunded.

Lisa Revis

Licensed Real Estate Agent

Houston, TX

January 28, 2009

The lender is your best choice for explaining exactly how it will work!

Real Estate Educator

Jersey Shore, PA

January 28, 2009

FHA 203B assists with purchase or refinancing of a principal residential; borrower must meet standard FHA credit qualifications and be eligible for 97% financing. They can finance the upfront mortgage insurance premium into the mortgage. It is a rehab program; the borrower gets one loan to finance both purchase and rehabiliation of the proeprty. Eligible improvements include floor covering (e.g., carpeting) It requires two appraisals; 'as is' and 'value after rehabilitation'. Cost estimates must include labor and materials sufficient to complete the work by a contractor. At closing, the proceeds designated for rehab or improvement are placed in a interest bearing account and released upon completion of the work, which is usually inspected by the appraiser. Has your lender done one of these loans before?

February 04, 2009

Why doesn't your client try for a 203K streamline. The Streamline is a faster process up to $30,000. This way they can finance the needed repairs and have more funds available to them. Escrow for a 203B can only be used for weather related repairs.

Michael Murray

Licensed Real Estate Broker

Portland , OR

January 27, 2010

HI Greg

I just got an accepted HUD offer yesterday with an "I E" listing code, in HUD-speak meaning "insured with escrow" for repairs. I had to start from scratch as I haven't done a HUD home in years, so I read the HUD administrator's website thoroughly. I didnt understand at first either, but its really simple: in my case, the home is $162000, and of that amount, the FHA lender keeps out $5500. THe buyer is borrowing the money in their loan, and the seller, HUD, is taking the hit NOT THE BUYER... its already included in the $162000! Its very sweet deal I think. It means HUD inspected the home, which they do BEFORE they put it on the market. They determine if it needs repairs to pass FHA guidelines, and if the amount of those repairs is less than $5000, then they designate that listing an "I E" meaning "insured with escrow" to make repairs that will bring it up to FHA standards. IF its more than $5000, then they recommend going the 203k route.

They actually prepare a "property condition report" on "I E" listings which is available on the HUD site when they put it up for sale, so if you're looking at a specific case number you'll find that report listed and available to share with your buyer.

FYI your buyer HAS to be getting a 203b FHA loan to use the $3800 for the carpet repair. If your buyer is doing a conventional loan, then none of this applies. His purchase price is $115k and there's no escrow holdout. But in that case the conventional lender might not have a problem with the carpet repair so it may not matter. Of course, your buyer would be responsible to fix the carpet on his own after closing.

Good luck with yours!

Margery Bare, Broker
Meadows Group Realtors
Portland OR 503-752-3435

Real Estate Lender

Mokena, IL

March 24, 2011

It is HUDs call and they do it up front. Its fairly simple, you can use the repair escrow if the FHA Case Number has been assigned and the Appraisal was has already been performed and the repairs (I believe its less than $3,000) are on the appraisal for the property to meet minimum standards then you can use this loan. The funds are out into the loan and escrowed at closing. Payment is made after inspection, remaining funds are paid against the loan balance.

Jimmy Lawson BranchManager Guaranteed Rate

(708) 995-3054

Licensed Real Estate Agent

Tremonton, UT

March 25, 2011

Some confusion still exists apparently with the escrow money. If there is an amount listed on the HUD website for repairs, the borrower adds that amount into their loan to pay for the repairs after closing. HUD does not take the "hit". HUD is not paying for these repairs rather allowing the borrower to have this amount as an escrow hold back at closing with the money held by the borrowers lender. This is only applicable if the borrower is using an FHA 203b loan.

When writing the offer on the HUD home the escrow amount is not added to the purchase price and is not calculated into the net. There is a separate line to put the escrow amount on. After closing the funds can only be used for the repairs listed on the website. The property condition reports now are more than a joke and useless.

Pueblo, CO

November 21, 2011

First and foremost I am not a Realtor. I recently purchased a HUD home via a FHA 203(b) loan an it is a total nightmare. So for what it's worth I am passing my "hands-on experience" with this type of a loan.

When considering entering into a contract with HUD for a property that is offered with this type of loan ... make sure you read every single word of the appraisal document. The "addendum" listing the estimated cost of repairs is NOT the only repairs you may be required to do. It is up to the DE underwriter and believe me they go through it with a fine toothed comb.

On our particular purchase on the Hud Addendum regarding mold inspection it stated "recommended" or "required". From HUDs perspective it was recommended (as it was VERY minimal) however the DE underwriter required a WHOLE HOUSE inspection.

Now, NORMALLY one would NOT have to agree to the repairs and the lender simply would not approve the loan. Sounds simple, right? Well of course you would lose your earnest money with HUD.

If your 203(b) loan is in fact processed and approved you will be required to sign an Escrow Agreement for Postponed Repairs & Improvements (withhold) .... go google this document! It gives a HUGE and I mean HUGE hammer to the lender in regard to who and how the repairs can take place .... and if not acceptable to them they can hire contractors to get the work done and you are responsible for any and ALL of these costs.

Perhaps you have no problem with that.

In my situation, the lender failed to have us sign the Escrow Agreement for Postponed Repairs & Improvements (withhold). In fact we never saw this document until about 30 days AFTER closing. Hmmmmm, really? or are they taking advantage of people causing them to possibly borrow more money than they really thought they would have to? Or is the appraisal maybe just a "little bit" inaccurate?

This issue still has not been resolved .... I'll try to remember to post the final outcome.

For what it's worth ... if you can swing the deal WITHOUT a repair escrow ... DO IT .... you will sleep a lot better at night knowing "big brother" can not harm you.

Please ALWAYS read the Indemnification clause in any agreement. In this case it basically relieves the Lender of any responsibility or consequence even if "they" make a mistake. The become the "Repair Escrow God".

If I would have known all this before, I would have went with a conventional or regular FHA loan.

School of "hard knocks" for me ..... "heads up" for everyone else.

God bless.

Licensed Real Estate Broker

Frederick, MD

November 22, 2011

For Joyce Hill.

It isn't unusual for a consumer to be disappointed with the outcome of a complicated real estate transaction.

In almost every case of which I am aware for many, many years, that consumer did NOT engage an EXPERIENCED Realtor or Attorney to guide them through the process.

Often, such a purchase is the ONE AND ONLY ONE a consumer will ever make. Why, why does a consumer believe that they can become expert in such a transaction and represent themselves???

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