INSURED WITH ESCROW (IE) qualifies for FHA financing with repairs to be completed by the buyer after the close of escrow. At closing, the buyer must finance the HUD-designated repairs into their FHA 203b mortgage.
The buyer has 90 days from closing to hire a contractor and complete the repairs. Upon completion and an inspection by the lender, the lender will pay the invoices.
The lender is paid a fee by HUD at closing to manage the process. If there are funds remaining after all invoices are paid, they will be applied to the principle balance of the buyer's loan. If the funds are not adequate to repair the property, the additional cost is the buyer's responsibility. If the buyers do not complete the repairs within the 90-day period after closing and no extensions have been granted, the funds are applied to the principle balance of the loan. Note the allowance for repairs is limited to Minimum Property Standard (MPS) (see definition under Insured above) required repairs. Buyers should thoroughly inspect the condition of the property prior to making an offer as there may be other non-MPS repairs needed.
The MPS money is deposited with the lender at the close of escrow. The lender inspects the repairs and authorizes the release of funds. All contractor bills are submitted directly to the mortgage company for payment. If the owner does the work themselves, they are only paid for the actual cost of materials. Any remaining MPS repair money not used will be applied to the principal (loan) of the home loan. FHA 203B loans may be obtained for these properties. Note special rules regarding financing apply on this type of property, consult your FHA lender for complete details
(see example 2 below). For Insured Escrow (IE) properties if the buyer is using FHA financing and the sales price exceeds the HUD appraised value, HUD will credit the buyer with the estimated MPS repair cost as listed in the listing offer (see example 2) not to exceed $5,000. The amount bid over the asking price and exceeding the estimated Minimum Property Standard (MPS) repair cost must be paid in cash. The net effect is this is not a discount off the purchase price, but does allow you to finance the repairs. See your FHA lender for complete details. Go to top
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