Financing

There are three different methods a purchaser can buy a HUD property: FHA Financing, Conventional Financing, or Cash. In all instances either a pre-qualification letter from a lender or proof of cash funds is required as part of the contract package which is due 2 business days after a bid has been accepted. One of the first actions you should take with a prospective purchaser who requires financing is to have them meet with a lender to receive a pre-qualification letter. Conventional financing is any non-FHA financing including VA. There are three types of FHA Financing below is a description of:

IN – Insurable – 203(b)

• Properties listed IN appear to qualify for FHA 203(b) financing. There should not be any MPS repairs necessary.

IE – Insurable with Escrow – 203(b) Repair Escrow

• Properties listed IE are eligible for FHA financing with repairs to be completed by the purchaser after the close of escrow. These repairs must be Minimum Property Standard (MPS) Repairs totaling less than $5,000. MPS Categories include; roof, structure, and mechanical systems, such as plumbing, electric, and heating. A listing posted inside the property will indicate actual repair amounts.
• The cost for the repairs is not paid by HUD; however, the buyer may finance the repair escrow amount in their mortgage. The lender is responsible for inspections of the repairs and authorizing release of funds.
• On the purchase agreement the repair escrow amount is not deducted from the Net to HUD or added to the purchase price on line 3. The repair escrow amount should only show on line 4.
• REPAIR ESCROW ONLY APPLIES TO FHA FINANCING – not cash or conventional transactions.

UI – Uninsurable – Conventional, Cash, or 203(k)

Properties listed UI generally are in need of extensive repairs and are usually purchased with cash or conventional financing. The only type of FHA financing they may qualify for is a FHA 203(k) loan. 203K FHA financing is a rehabilitation loan for owner occupants purchasing properties that have over $5,000 dollars worth of MPS repairs. Not all UI properties will qualify for FHA 203(k) financing.

Please note: Any non-FHA loan is considered a conventional loan.