All HUD homes are appraised by local FHA appraisers and the price placed on a HUD is the appraised amount. FHA sets Minimum Property Requirements (MPR); these are the standards with which the appraiser’s determine if the property meets the insurability requirements for a buyer to obtain an FHA loan. When you search for HUD homes you will see IE, IN, IE with insured escrow on the main screen for each property. So what does that mean?
1. IN which means Insured. This means that the property meets FHA Minimum Property Requirements. The FHA appraiser who did the appraisal reviewed the house and is stating that the condition of the house will pass an FHA appraisal if the buyer decides to obtain an FHA loan. May also qualify for a FHA 203B loan.
2. IE which means insured with Escrow. This means that there are repairs needed to the property to make it eligible to pass an FHA appraisal. The Minimum Property Requirements (MPR) would be up to $5000.00 plus a 10% contingency paid by buyer when using FHA financing only. This may qualify for a 203B with repair escrow.
3. UI which means uninsured. This means that the home does not meet the MPR and the repairs are over $5000.00 These properties may be eilgible for a FHA 203 K Rehabilitiation loan.
Some other points to know:
- Escrow is applicable only to FHA financing
- Escrow amount is 110% of total repairs needed to bring house up to FHA Minimum Property Requirements (MPR).
- Buyer must qualify for additional funds to be added to loan – otherwise must pay escrow amount in cash (escrow amount is added to the contracted sales price on the HUD-1).
- Lender holds escrow.
- · All repairs are to be completed by the purchaser within 90 days after closing.
- Upon satisfactory completion of repairs, lender must disburse escrow to compensate the buyer or contractor, as appropriate
- If actual repair costs are less than the amount escrowed, the balance in the escrow must be applied to reduce the outstanding principal balance of the mortgage
- If the escrow is inadequate, or if additional items of repair are discovered at some subsequent date, it is the buyer’s responsibility to bear the additional cost.
Remember that HUD homes are listed in the multiple listing service and if you are working with an agent they can show these properties to you. If you do not have an agent I can show you any of the homes in my area listed on the HUD Home Store site.