HUD $100 Down Incentives on HUD REO Programs for FHA Financing

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This week I decided my topic would be HUD’s $100 down incentive program because we are starting to see a lot more of these deals, particularly in certain areas of the country. These programs include the specific HUD $100 down incentives plus the Good Neighbor Next Door program offered by HUD.

You will find a specific listing of states that are offering the HUD $100 down incentive by going to HUD’s Home Sales Incentives website at http://www.hud.gov/salesincentives/. Right now the states of Colorado, Michigan, Montana, Ohio, Pennsylvania, Utah and Wyoming are listed as offering $100 down payments on HUD homes with FHA financing.

For more information on HUD’s Good Neighbor Next Door Program, which is specifically designated for law enforcement officers, teachers, firefighters and EMTs, you will want to refer to: Click Here>>.

I highly recommend all FHA processors read Mortgage Letter 2000-27, which offers appraisal and processing instructions on HUD REO loans, Click Here>>. This mortgagee letter explains the circumstances under which the HUD REO appraisal must be obtained and used and when the lender needs to request and charge the borrower for a new appraisal. In addition, ML 2000-27 explains that termite inspections and private well and/or septic inspections, if applicable, should be obtained from the M&M Contractor who oversees the jurisdiction of the property. You can find a listing of M&M Contractor contact information at: Click Here>>.

The appraisals for HUD REO properties will be reflected under the following categories:

· Insurable- which are properties that meet FHA’s Minimum Property Requirements at the time of appraisal, are listed in “as-is” condition and require no repairs.

· Insurable with Conditions- which are properties that are found to be in need of additional inspections which can lead to repair conditions. If the additional inspections indicate the need for repairs and the required repairs do not exceed $5000 total, the loan can be processed as a standard 203b program with repair escrows but if repairs exceeding $5000 are required, HUD’s 203k rehab program must be utilized for financing.
**IMPORTANT TIP** Always check the lenders guidelines because many do not allow ANY escrows for repairs regardless of how smart the repair estimate!

· Insurable with Repair Escrows- which are properties that are found to be in need of required repairs. If the required repairs do not exceed $5000 total, the loan can be processed as a standard 203b program with the purchaser establishing a cash escrow at closing to ensure the completion of the required repairs. If needed, the purchaser can finance up to 110% of the estimated repair costs. If repairs exceeding $5000 are required, HUD’s 203k rehab program must be utilized for financing.
**IMPORTANT TIP** Always check the lenders guidelines because many do not allow ANY escrows for repairs regardless of how smart the repair estimate!

· Uninsurable- which are properties that do not meet FHA minimum MPR and the costs to repair are estimated to exceed $5000. These properties may only be financed with FHA’s 203k rehab program.

Mortgagee Letter 2000-27 also offers requirements for the HUD sales contracts and additional information and instruction on ordering the FHA Case Assignment correctly for a HUD REP property.

For loan amount calculations, the base loan amount would simply be the lower of the purchase price or appraised value minus $100 which is the required downpayment for a HUD $100 down incentive deal. The 1.5% MIP is then financed and added to the base loan amount.

These loans cannot be processed through automated underwriting but rather must be manually underwritten which means they are subject to standard manual underwriting ratios of 31/43 but may be approved at higher ratios when compensating factors are present with the loan submission.

There are a number of website resources I like to refer to in order to learn more about HUD Real Estate Owned properties and sales. I think you’ll find the following sites informative and helpful:

HUD HOME SALE INCENTIVES: http://www.hud.gov/salesincentives/

FAQ ON INCENTIVE PROGAMS STARTING 11/2007: Click Here>>.

HUD HOMES WEBSITE: Click Here>>.

HOW TO BUY A HUD HOME: Click Here>>.

HUD Home Listings by state: http://www.hud.gov/homes/

Good Neighbor Initiatives: Click Here>>.
About Good Neighbor Next Door: Click Here>>.
Good Neighbor Eligible Participants: Click Here>>.
FAQ-Good Neighbor Next Door Program: Click Here>>.
HUD Revitalization Areas: Click Here>>.
HUD Special Program Areas by state (search engine): http://hud.uai.com/hudpls/FindArea.aspx
HUD Special Program Areas by Address (search engine):
http://hud.uai.com/hudpls/ViewMap.aspx?FindAddTI=1

Dollar Homes: Click Here>>.

Hurricane Evacuee Discount Home Sales: Click Here>>.

How to Sell a HUD Home: Click Here>>.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.