What Does Repair Escrow On A HUD Home Mean?

As more buyers are venturing out this year and sales are expected to increase; a question that seems to be popping up is what is repair escrow on a HUD home. HUD does not do any repairs to the houses they put on the market. Instead HUD offers these homes with a FHA financing with repair escrow. HUD has the homes inspected for the basic functions and appraised. HUD then offers the house for sale with a repair escrow. A repair escrow is when they estimate the repairs to be minor (up to a maximum of $5000) in order for the house to qualify for a FHA loan. These repairs would have to be completed normally for the house to be sold as an underwriter would not approve the home loan without the repairs normally. In these cases the lender holds the money in an escrow account until the repairs are done and pays the contractor that has properly repaired the problems. HUD gives the buyer up to 90 days to get the repairs done on the house. Though there are some exceptions to this rule; depending on the repairs to be done to the house. For example if it is to repair siding or any outside area of the house that requires warmer weather HUD can extend the time frame do to the weather conditions at that time of the year. Once the repairs are completed the contractor submits an invoice into the lender and the lender will pay them out of the repair escrow. In some cases this works well and in other cases it does not. I have seen situations where the repair escrow was more than sufficient to cover the cost of repairs and the buyers received a check back for the unused amount of money they put up in escrow. In other cases the repair work was greater than the repair escrow and the buyer had to come up with the difference. Even with this type of situation buying a HUD home have many benefits. Because even though they may require an escrow amount of money from you to finance the home as FHA insurable; they offer the homes with $100.00 down program. So you would not have to put the standard 3.5% down and can still get the FHA loan and use that money to cover the repair escrow. I have found HUD homes to be very advantageous to purchase and if your Realtor knows what they are doing along the way it can be a smooth transaction. Dave diCecco Realtor/Broker Coldwell Banker United www.davedicecco.com