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HUD Home Buyers Using FHA Financing FAQ

Information for purchasers that are obtaining FHA financing for a HUD home:


If a property is offered as FHA insurable with a repair escrow, the amount of that escrow will be added to the buyer’s mortgage.  It is NOT a gift or seller credit at closing.  The buyer may not pay it in cash at closing, nor may it be eliminated or reduced.  It can only be increased up to $5,000 (including a 10% reserve) by a lender-ordered FHA compliance/mechanical systems inspection.  Buyer must provide proof of loan qualification for the purchase price and the repair escrow amount.



Only when owner occupants are obtaining FHA financing will HUD provide both a termite (wdo) report and LBP stabilization assessment – free of charge – to the buyer. If the termite report is not dated within acceptable lender guidelines, it will be the responsibility of the buyer to pay for an updated termite (wdo) report. HUD does not, however, pay to remediate any wood rot or any other type of damage caused by previous or current, live infestation. In these cases, the buyer will have the option of cancelling the contract or they may obtain estimates for the purpose of establishing a repair escrow (which will be added to the buyer’s loan) to remediate the damage after closing.

If LBP stabilization assessments of homes constructed before 1978 reveal remediation costs up to $4,000, HUD will ensure that the remediation is complete before closing at HUD’s expense. If the stabilization exceeds $4,000, HUD (at their discretion) will cancel the contract or allow the buyer to change their FHA financing to a loan program, such as the 203k or streamline loans, to finance the remediation into their loan. The buyer and/or lender may not waive the LBP stabilization evaluation.


Please Note:

This page is only a general overview of HUD’s policies and procedures and it should not be considered to be all inclusive or absolute.

To read more detailed information about HUD’s policies and guidelines, as well as additional stipulations of HUD’s asset managers, please visit

A COMPLIMENTARY review of all HUD contract packages is offered 7 days a week.
Simply email your fully executed contract package to

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