HUD homes can always 100% of the time be purchased using cash, conventional or perhaps alternate financing such as USDA (available in certain designated areas only) . In many cases they can be purchased with FHA Financing and a Renovation loan may be possible. Appraisers determine what properties qualify for FHA financing. The PCR (Property Condition Report) weighs quite heavy in determining if the property will qualify for FHA insured financing. Once the disposition of the property has been established, the property is initially listed at the as-is appraised value and will reflect the financing acronym that is appropriate. It is vital that real estate agents have a clear understanding of the FHA finance terms to better educate their client prior to making an offer to purchase.
(IN) Insurable, FHA 203(b) – Properties listed insurable qualify for FHA financing. (IN) represents in this case the property does not have obvious minimum property standards or (MPS) repairs. Its good to note the properties with MPS repairs totaling $250 or less will be listed as IN and will not include those repairs.
(UI) Uninsurable- Properties listed as Uninsurable (UI) do not qualify for FHA 203(b) financing. In most cases the MPS repairs exceeded $5000 or the property may not meet the guidelines for FHA financing for other reasons. Non FHA and CASH are used in these scenarios typically.
(IE)Insurable with escrow FHA 203(b)- With repair escrow properties listed as (IE) or insurable with escrow these properties will need repairs done to meet MPS post escrow closing. The MPS repairs cannot be more than 5k except in cases where the 10% contingency causes the increase in escrow and is the financial responsibility of the buyer. Repair escrows are never a credit to buyer. The purchaser must finance the repair escrow with their lender. The lender holds the funds in an escrow acct until they are completed. FHA allows up to 90 days once the deal is closed for MPS repairs to be certified by appraiser as completed. Once repairs are confirmed as completed, the lender will then disburse funds to appropriate parties. The repair escrow only applies to FHA 203(b) financing.
Overbidding with FHA Financing– if a buyer overbids on a HUD home and desires to utilize FHA financing they then become responsible for the difference in cash. The property has already been appraised by an FHA appraiser and cannot be re-appraised within 4 months of original appraisal. A buyer may use other financing which will cause the property to be re-appraised with a non- FHA loan. If the property appraises for the amount they overbid then no out of pocket cash required to make up difference.