It is important to be familiar with three terms which the US Department of Housing and Urban Development uses in sales
If you plan to buy HUD Real Estate Owned (REO) properties, it is important to be familiar with three terms which the US Department of Housing and Urban Development uses in sales: Insurable (203b), Insurable with repair escrow (203b), and Uninsurable 203b which may be eligible for conversion to an FHA 203k Loan.
If your target property is listed under Insurable, this can only mean that the FHA may finance it without any additional repair. It may also be listed as Uninsurable, which means that a regular FHA loan is not available because the repair costs may exceed $5,000.
The third type of listing and is the most complicated of the bunch is called Insurable With Repair Escrow. Minor repairs specified in the listing must be completed before the FHA can guarantee financing. The costs of the repairs are added to the loan amount. The Repair Escrow is a necessity. You will be required to pay for the repairs initially but you are allowed to recoup the costs upon disbursement once the work is completed.
Under this plan, the borrower may be able to get up to $5,000. Together with the 10% contingency reserve, the total limit may reach up to $5,000 in MPR (Minimum Property Required) type repairs. Exceptions are not allowed to exceed the repair amount as determined by the appraiser and indicated in an addendum called Repair Escrow Information.
If the costs are above the limit, there is a chance that it may not be allowed reimbursement within the plan. It is good news, however, that borrowers may fund the overage subject to the consent of the title company. Note that consent must be obtained before submitting for review and approval.
To find out if the property you intend to purchase is covered, you must verify with the HUD’s listing. Contact PrimeLending to help you get started!
