Types of HUD Homes

The 4 types of HUD Homes are determined in the early stages after HUD acquires the property.  An FHA appraisal is ordered and a series of inspections are performed, and reports are sent to HUD’s regional office to determine the disposition of the property. The initial listing price is set at the appraised value. The condition of the property determines eligibility for FHA financing. There are four financing categories for HUD homes:

· 1.  Insurable (IN)    These are the HUD properties that meet FHA minimum property standards and qualify for the FHA 203(b) loan. Typically these homes do not require any repairs.  They are 90% of the time in good condition.  You will probably find that the home needs cleaned, new carpet, appliances, and paint.  Buyers will not have to pay an appraisal fee for FHA 203(b) loans because the lender is required to accept HUD’s appraisal as long as the appraisal was complete within the last 90 days.  If the appraisal is older than 90 days than the lender will require a new appraisal.

· 2. Insurable with repair escrow (IE)    These properties are available with standard FHA financing with a special accommodation for repairs. HUD’s inspectors and/or appraiser have determined that the property will meet standards through FHA if certain repairs are made. Those repairs must total less than $5,000 in this program. A list of repairs is noted on the appraisal, and an amount to complete those repairs is calculated. A purchaser who buys a home that is designated IE will have a separate escrow account created at closing so that the buyer can complete those repairs. The buyer will be able to borrow money to pay for the repairs and include the cost for those in his mortgage. (For example: A buyer has a winning bid of $100,000 for a HUD home; cost of repairs is $3,000. Cost to purchase the home will be calculated at $103,000.) The lender will request the borrower to schedule the work to be done within 5 business days of closing. In Ohio, the escrow amount includes a 10% contingency reserve that is required by HUD. I like to think of the contingency reserve as a cushion if something goes wrong or a repair costs more than what the contractor was expecting.  After the work has been done an appraiser must go out tot he property and verify all work has been complete.  If there is any money left over that wasn't used that amount would be applied towards the principal balance of the loan.· 3.  Uninsurable (UI)    These properties need more extensive repairs (more than $5,000) after closing than IE properties. These properties are available for cash buyers and/or buyers who are using conventional financing. It is often difficult to obtain financing on a UI property with less than 20 percent down payment.  In fact, depending on the type of repairs needed some lenders will not finance that home with a conventional loan.  Please ask you realtor or lender for more specific details!

· 4.  Uninsurable 203(k) (UK)    eligible. These Uninsurable properties are available with FHA 203(k) financing, a special acquisition and rehabilitation loan program.  Ask your lender if they offer this type of rehab loan.  You can also read this blog for additional information on this type of loan: http://www.trulia.com/blog/molly_hay/2011/05/can_you_borrow_more_money_than_the_purchase_price_to_make_repairs_to_the_home

Please call me if you are looking for a realtor to help you through this process! I am an expert and I specialize in Licking County, Pickaway County, Franklin County and Fairfield County.