When HUD lists a property with a repair escrow amount, where does the money come from for the repairs? Is this a credit (free money) I get from HUD?
Answer: Buyer cost and no, it is not free money from HUD (seller).
First, the FHA appraiser lists the estimated cost of repairs needed to bring the property up to minimum FHA standards. This amount is then multiplied by 110% and this amount is listed as the repair escrow amount. Example: if repairs total 1,000.00 x 110% = 1,100.00. The Repair Escrow amount will be listed at $1,100.00. To see the itemized list when the property is listed on the HUD Home Store website, take a look at the Addendums Tab for the specific property and then view the Disclosures.
203((b) – Repair Escrow – Listed as “IE”
When a property has less than $5000 in repairs to bring it up to Minimum Property Standards, FHA will insure the loan provided the repairs are completed by the Buyer or the Buyer’s agent within 90 days from the date of Closing. It is a cost to the Buyer that the Buyer can finance and add the amount to the mortgage.
The Lender monitors and keeps the funds in an escrow account for disbursement on completion of repairs to the Lender’s satisfaction. The Repair Escrow agreement is between the Buyer and the Lender. HUD is not involved in this part of the transaction and each Lender may have a different process on how they handle the process. It is very important to have great communication with the Lender to understand what is expected without any “surprises”.
Real Estate Resource Services has experienced agents, staff, and lenders to help you with any of the HUD sales process. Contact RERS to represent you on your offer to purchase a HUD owned property.