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Tips for Home Buyers

Frequently Asked Questions For Buying HUD Homes

What Is A Property Condition Report?

An initial Property Condition Report (PCR) is immediately ordered when the property becomes part of HUD's inventory. This process is a visual inspection of the property and a plumbing pressure test.

The PCR is not prepared by a certified inspector; therefore, no warranties are made in conjunction with the report.

The preparation of the PCR is not a home inspection and is not intended as a replacement for the home inspection. Buyers are strongly encouraged to hire a professional inspector to complete a full home inspection.


Is The Buyer's Offer Contingent 

Upon A Home Inspection?

No. All HUD homes are sold in their "as is" condition and there are no warranties. 

Buyers have 15 days from the date the contract is signed by HUD to perform a home inspection at their own expense. Results of the inspection are informational only and do not affect the terms of sale. If a repair is identified during the inspection, whether disclosed or not, it will not be repaired by HUD or credited at closing. The buyer may seek bids for the repairs and add them to the escrow account as applicable.

Please note that the buyer must request permission to activate the utilities with the Field Service Manager (FSM) assigned to the property, which may require an additional fee from the buyer.

Does The Seller Pay For The Escrow Amount Noted In The Property Listing And HUD Appraisal?

No. The escrow amount is an amount that must be financed by the buyer to complete necessary repairs at the property.


The Plumber Found Plumbing Issues During 

The Home Inspection And The Water Needed 

To Be Turned Off. Who Will Complete 

The Plumbing Repairs?

The buyer is responsible for making plumbing repairs after closing. When the water cannot be turned on because of plumbing issues, the professional plumber can give the buyer a rough estimate for the necessary repairs. The lender can close on the loan, setting an escrow for the plumbing. In doing so, the lender meets FHA guidelines and the loan is secured.

The Realtor Requested To Turn On The Water Because The Appraiser Stated That The Utilities Were Not On At The Time Of The Appraisal, But The FSM Refused The Request. Can The Asset Manager (AM) Help Turn On The Water?

No. The request to turn on the water will be rejected by the FSM if there are records that plumbing issues exist. The selling realtor can ask a professional plumber do to a pressure test on the property and provide a rough estimate for repairs when necessary. Rough estimates for plumbing repairs should be sufficient for the underwriter to approve the loan. The cost could be added to the escrow amount.

The AM has no influence over the FSM's decision to turn on utilities.

The Property Was Listed As Insurable With No Escrow And The Appraisal States The Same, But A Home Inspection Revealed That There Are Needed Repairs. Will HUD Fix The Repairs?

No. The properties insurability is based on the appraisal. If repairs are identified during the home inspection that cause the property to no longer meet minimum property requirements for FHA financing the buyer's agent must send a signed letter from the lender on lender letterhead to the AM stating how much escrow is required and whether or not that amount already includes HUD's required 10% contingency.

Please note that the escrow is an amount added into the loan and financed by the buyer.

The Septic System Did Not Pass The Home Inspection. Will HUD Pay To Have It Repaired?

No. Any costs associated with repairing the septic system must be added to the escrow for the repairs to be completed after closing. This includes plumbing issues, septic and water well repairs.

There Are Repairs Identified In The Appraisal
And Home Inspection. The Underwriter Will
Not Approve The Loan Until The Repairs
Have Been Completed.

When the seller is a private seller, the FHA underwriter can call for the repairs to be completed and they must be finished before closing. When HUD is the seller, no repairs may be completed prior to closing. Any repairs necessary to bring the property to Minimum Property Requirements (MPR) have to be accommodated through a 203(b) with escrow or 203(k) loan. Refer to Mortgagee Letter 00-27, page 7, third paragraph.

The Underwriter Is Asking To Escrow For
Cosmetic Items. Can We Increase The Amount
Of Escrow In The Loan?

No. The only repairs allowed to be placed in escrow are those that represent a risk to the health and safety of the occupants or the soundness of the property. The lender may request to add an escrow or increase the escrow for repairs related to roof, plumbing, electric, furnace, foundation, structural deficiencies, etc. Cosmetic items, such as those listed below may not be placed in escrow:

  • Missing handrails
  • Cracked or damaged exit doors that are otherwise operable
  • Cracked window glass
  • Defective paint surfaces (in homes constructed in 1978 or later)
  • Defective floor finish/covering (worn through the finish, badly soiled
    carpeting, etc.)
  • Rotten or worn out counter tops
  • Damaged plaster/sheetrock or other wall and ceiling materials (in homes constructed in 1978 or later)
  • Poor workmanship
  • Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)

This list does not include all cosmetic repairs that are not allowable in escrow. This is a sampling to provide a general idea of what is considered to be cosmetic. Reference Mortgagee letter 2005 ML 48 for full details.

The Estimates For The Repairs Are Less
Than $500.00. Can We Set Up An Escrow
Repair Account?

No. HUD's goal is to provide safe, low cost home ownership opportunities. It is not uncommon for buyers to spend all available funds purchasing the property with nothing left to complete necessary repair after closing. The purpose of the escrow is to prevent buyers from purchasing HUD properties that have deficiencies which may affect the health, safety or soundness of the home, without having funds available to complete the necessary repairs.

HUD pays a minimum of $250.00 to set up the escrow account, therefore, any repairs less than $500.00 could close without a necessary escrow. Lenders may allow a buyer to use a FHA 203(b) loan for such properties.

The Appraisal States There Is Lead Based
Paint (LBP) In The Property. Can This Be
Included In The Escrow?

It is unnecessary to include LBP in the escrow. When a property is built prior to 1978, the FSM will hire a professional LBP contractor (certified in the same state as the property) to test for LBP. If the test results are positive for LBP, the contractor will provide an estimate to remove the LBP (stabilization report).

If the buyer is using a 203(b) or 203(b) with escrow loan and the estimate to remove the LBP is less than $4,000.00, HUD will remove the LBP prior to closing. If the buyer is using 203(k) HUD will provide a credit at closing in the amount equal to the estimated amount from the contractor, but not to exceed $4,000.00.

If the buyer is using a 203(b) or 203(b) with escrow loan the property cannot close until a clearance test is obtained by a third company verifying the property is clear of LBP hazards.   

If the buyer is using an FHA 203(k) loan, they may close with the escrow on the side to remove the LBP.
What Happens To The Escrow Amount When LBP Stabilization Is Going To Cost More Than 4,000.00?

If the buyer is using 203(b) or 203(b) with escrow financing they can either cancel the transaction or switch to 203(k) financing.

If the buyer is using 203(k) financing they will need to include the stabilization cost in the rehab cost. HUD will credit the buyer up to $4,000 for stabilization at closing.

If The Buyer Is Using An FHA 203(K) Loan From The Beginning, Will HUD Remove The LBP If The Estimate Is Less Than $4,000.00?

No. Buyers using 203(k) are responsible for removing the LBP after closing.

If HUD Is Removing The LBP, When Will It Be Removed And How Long Will It Take?

For buyers using FHA 203(b) or 203(b) with escrow loans, the LBP will be removed prior to closing if the estimate to remove the LBP is less than $4,000.00. How long the process takes depends on where the property is located, the extent of the hazard and how quickly the FSM is able to find a contractor to complete the work. Therefore, HUD is unable to provide a solid timeframe because it varies from property to property. Homes in remote areas may take longer than those in suburban areas depending on availability of contractors.

When using FHA 203(k) the buyer is required to stabilize the hazard after closing has occurred.

What If The Contract Is About To Expire And
The LBP Has Not Been Removed. Do We
Have To Get An Extension?

Yes. In order for the lender to close, the contract must be current. Therefore, the selling agent must send a request for extension of closing to the AM. Because the delay is caused by the removal of LBP, extension fees will be refunded.

Can The Buyer Waive His Right To The
Removal Of The LBP?

No. The buyer does not have the option of waiving this right. If the estimate to remove the LBP is less than $4,000.00 and the buyer is using FHA 203(b) or 203(b) with escrow, the LBP must be removed before closing.

If the buyer is using FHA 203(k) or non FHA financing the LBP cannot be removed prior to closing.

The Property Had Carpet When The Offer
Was Submitted But It Was Removed During
The LBP Stabilization. Is HUD Going To
Replace The Carpet?

No. If the stabilization treatment calls for removal of carpet, the carpet must be removed as part of the remediation process in order to make the home safe and healthy for the occupants. Because the carpet presented a health hazard, it will not be replaced.  

The lender may allow the sale to close "as-is" or get bids for replacement of the carpet and add the amount to the escrow for the loan.

Escrow is an amount financed exclusively for the buyer and is not a grant/gift from HUD.

Can The Buyer Or Seller Stop By The Property During The LBP Removal Process?

No. It is crucial that no one enters the home until the LBP clearance test is passed. If someone enters the property there is a chance that results of the clearance are affected. LBP dust from outside can be tracked into the house and remediation must start over, ultimately delaying closing.