Difference between Insured / Insured With Escrow

6 Replies

There are two categories of insured HUD homes.

1) Insured
2) Insured with Escrow

Both of which qualify for FHA financing once the repairs have been made correct? Whats the difference exactly between "insured" and "insured with escrow"

Thanks!

It only matters if you are getting a loan. As my loan agent explained it to me, IE is Insured with Repair Escrow and the loan is a 203B. The repair escrow is an amount of money that the buyer must deposit into an escrow account with their lender. Some lenders require 1.5 times the amount of the repair escrow. Then you have to complete the work HUD requires within a certain time period, and they will give you the money back from the repair escrow. You must turn in bills from a contractor, even if you can do the work yourself. The loan agent said this is a major, major headache. My client decided not to buy a HUD house.

Or you can get a 203K loan, where they loan you the money to do the repairs as well as the purchase price.

Or, just pay cash.

I never tried to sell an insured HUD property, but I would guess there isn't as much damage and they don't make you do the escrow if you have a loan.

Thank you for the indepth reply Mellissa, I really appreciate it. I had some additional questions as well if that’s ok.

Since I will be buying the houses with cash, then the difference between Insured and Insured with Escrow makes no difference to me because I won’t need a loan.

My understanding is once I property exceeds $5,000 in repairs to inhabitable the house becomes uninsured and does not qualify for FHA financing.

In other words what that means to me as a wholesaler, is when I am looking at these properties. If the property is Insured or Insured with escrow, there are probably no MAJOR structural issues in the house. For instance needing major foundation or roof repair correct?

Updated over 7 years ago

Update: In other words if a subject HUD property is Insured or Insured with Escrow. I won't need to worry about needing 6k in foundation repairs and or/ 7k in roof repairs.

Look on the HUD homestore site, there is a tab that will say addendums, then look at the PCR and it will give a list of what they think is wrong with it.

I wouldn't bet on them being correct about what the house needs, or overlooking major repairs. I don't think the people managing and servicing the HUD foreclosures were very competent at all.

I wouldn't buy one without having contractors that I actually use for my properties look at them and give estimates for rehab.

Hey All,

I was looking into this as well and found a good answer from: "Tracy Richar…, Home Buyer, Soddy Daisy, TN Sat Aug 18, 2018" Post on Trulia.com. This Post is the 4th one down from the question. 

https://www.trulia.com/voices/Home_Buying/is_it_better_to_buy_a_home_that_is_insured_with_es-276822

Looks like there are three types of HUD categories. Insured, Insured with Escrow, and Uninsured. Insured looks like no necessary repairs are needed to close. Insured with Escrow, looks like it needs repairs to close that require less than or equal to 5k and you will have to put money into escrow to get these done. I know banks often want the work done by a licensed contractor and not your uncle Joe. Uninsured looks like you could get a 203K Loan to cover the costs necessary to close, usually, this entails over 5K. I hope this helps, but again always check with your lender.

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