How does the “repair escrow” work on a HUD?
In order for FHA to insure the loan on a HUD owned home, the home must be in acceptable condition and pass the FHA approved appraisal/inspection provided by HUD’s appraiser. If the required repairs exceed $5000 the home is considered “uninsured”. Click here for more explanation. When the repairs are under $5000, FHA allows the purchaser / borrower to include the cost of repairs in their loan amount (only up to $5000). These repairs must be completed within 60 days (varies by lender) and then the lender will reimburse the purchaser/borrower for the repairs. Only the repairs required by FHA will be reimbursed and they will only reimburse from paid receipts. The lender will not allow you to complete the work for less and pocket the difference. They will reduce your loan amount by the left over escrow repair money. CAUTION: You will need to find repair people that will complete the work in advance of the lender paying them from escrow or you will need to pay them yourself in order to pass
