Scottsdale Real Estate      
LEN ROBERTS       Phone: (480) 216-6779



The United States Department of Housing and Urban Development (HUD) oversees the Federal Housing Administration (FHA), which provides federal insurance against default on home mortgages. If the payments are not made on an insured FHA loan, the mortgagee forecloses, or accepts a deed-in-lieu, then files an FHA insurance claim for the unpaid loan balance, and conveys title to the property to HUD. At this point, the house becomes a HUD owned home. HUD did not foreclose or repossess the property, but acts as receiver when the conveyance occurs.

Using licensed HUD registered real estate brokers, and the agents associated with them, purchasers can offer to buy a HUD home. Before making an offer prospective buyers must have a letter, written on the stationery of a mortgage lender, stating that they have been pre-qualified (with Credit Report performed, reviewed, and approved by the lender) for the loan amount that will be needed. Buyers paying all cash must provide proof of available funds.

During the first 10 days on the market, HUD properties can be purchased only as OWNER OCCUPIED. After the 10th day they may also be purchased by investors who do not intend to occupy the property.

An independent FHA-approved appraisal and an inspection are completed before the HUD property is offered. The house is initially listed at the appraised value. Bids may be made above or below the listed price. It is important to understand the listing codes and how financing is affected.

The codes are as follows:

1. Insurable (IN)

Properties listed in this category appear to meet FHA 203(b) financing requirements. No obvious repairs are necessary for HUD to insure an FHA loan to a qualified Purchaser.

2. Insurable with Repair Escrow (IE)

Properties listed in this category are eligible for a 203(b) FHA loan with required minimum property standard (MPS) repairs totaling less than $5,000 to be made by the Purchaser, financed by the FHA lender. If a 203(b) FHA loan is the financing, the repair escrow must be used for the needed work specified in the listing. In completing the Sales Contract (HUD-9548), the escrow amount is NOT deducted from the net to HUD to derive the amount that will be entered on line #7, NOR is it added to line #3, the purchase price. There is a separate line in Item #4 for the repair escrow amount to be noted. The lender making the new FHA 203(b) loan establishes an escrow account for the amount of the repairs. The amount given with the listing includes a 10% contingency. After close of escrow, the lender will inspect work as it is completed on the house and distribute the repair monies as appropriate within ninety (90) days. The costs of repairs are included in the loan amount and repaid by the borrower as part of the house payment. Any funds in the escrow account that are not used for the repairs will reduce the unpaid principal balance of the loan. Note that the repair escrow only applies to FHA 203(b) financing. If non-FHA financing is used, or if an all cash purchase is made for an IE property, the repair escrow does not apply.

3. Uninsurable (UI)

Properties listed UI, uninsurable, need more extensive repairs after close of escrow and are deemed not eligible for FHA mortgage insurance in their “as–is&rdquo condition. All–cash, or other financing not involving FHA, is often used to purchase UI properties.

Insurable “With Conditions” (May be either IN or IE listing code.)

Properties that are listed either IN or IE may also have a notation in the listing that indicates –With Conditions.– Typically the conditions involve having a systems check, roof inspection, or other property condition inspection as required by the appraiser to satisfy lender requirements. The inspection fees expended are a buyer’s cost. Some fees may be reimbursable at closing, depending upon the Region where the property is located.

Len Roberts
My Home Group, LLC
110 S. Priest, Suite 101
Tempe, Arizona 85281
(480) 216-6779Z

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