Answers to 5 Repair Escrow Questions

HUD homes in Columbus Repair EscrowMany HUD homes are listed as Insured with Escrow. It seems that this repair escrow confuses many home buyers. Let me explain what the repair escrow means, what it’s for and why it is beneficial for home buyers.

FHA uses 3 categories to describe which type of financing is offered for a specific HUD listing: Insured, Insured with Escrow and Uninsured.

Insured means that you can get regular FHA financing without any additional repairs.

Insured with Escrow indicates that minor repairs, which are specified in the HUD listing (up to $5,000), must be completed before FHA will underwrites a regular loan. They allow the buyer to close on the purchase and add the cost of these repairs to the loan amount. However, the lender must hold this repair costs in escrow until the work is completed. Then it is disbursed to the buyer.

Uninsured means that you cannot get a regular FHA loan, because the house needs more than $5,000 in repairs. In that case you may still apply for an FHA rehab loan, also known as a 203k loan.

Common Questions

Here are the answers to the most common questions we get from buyers on a regular basis.

Can the repair escrow be used with any type of loan?
No. The repair escrow only applies to FHA loans. If you use another type of loan, you will have to do a new appraisal. Based on the appraisers opinion your lender will either underwrite the loan or not, or offer you other options to cover the repairs. Many lenders are very cautious these days. Some won’t underwrite a loan, if carpets are missing, if there are minor holes in the drywall, or even, if there are not appliances.

Does HUD pay for this repair escrow?
No. You have to pay for the repairs. However, as a benefit to the buyer, the amount of the repair escrow can be added to your loan amount. You will have to front the cash and pay your contractors for the repairs, or do them yourself.

Do I have to pay for the repairs?
Yes. You will have to pay for the repairs initially. When the work is complete, the appraiser will come back to your house to verify that everything is done. Only at that time will be lender release the escrow. It can be paid to you in cash as a reimbursement of the cost you incurred to do the repairs, or you can apply it to the principal and reduce your loan amount.

What’s the maximum amount FHA allows?
The maximum repair escrow allowed on a regular FHA loan is $5,000. The exact amount is specified in the HUD listing and disclosed in an addendum called Repair Escrow Information. You have to go with the exact number specified by HUD. You are not allowed to add other repairs to the escrow.

Why should I use the repair escrow anyway?
It is both a benefit and a requirement. FHA requires that you make the repairs specified by HUD in order for them to underwrite an FHA loan. As a benefit, they allow you to pay for these repairs by increasing the amount of your new loan and getting reimbursed, when the work is completed.

If you have any other questions regarding the repair escrow, please leave a comment in the box below and we will answer it on our blog.

{ 33 comments… read them below or add one }

vj October 14, 2011 at 1:31 am

does repair escrow apply if i buy a hud home with cash i am a first time buyer of a home with repairs up to 3500.00 how can i take advantage of this .Thank you for any help on this.

admin October 14, 2011 at 12:25 pm

Hi, thanks for your interest. The repair escrow is not free money, it’s money that will be added to the FHA loan amount for buyers who finance their purchase with an FHA loan. In the end they will have to pay for the repairs themselves, HUD is not paying for anything. If you are buying cash, you can disregard the repair escrow. It’s just an indication for you what type of work the property needs.

I hope this helps.
Susanne Novak, ABR, FIS, GRI
Solutions for Real Estate
100 E Campus View Blvd #340
Columbus OH 43235
HUD, REO & Investment Specialist
Tel: 614-975-9650
Fax: 614-364-7478

Joyce November 5, 2011 at 5:58 pm

On a hud listing I was looking at under the repair escrow addendum it states a code of MI , mold inspection recommended or required …. what does that mean? Is it recommended? or Required, I don’t understand

admin November 7, 2011 at 1:59 pm

Joyce, if you are purchasing the property cash, then the mold inspection is not required, however, in the event you re-sell, you will have to disclose if you did a mold test and/or remediation. If you are financing your purchase with a bank loan, then most likely the lender will require a mold test and remediation quote before underwriting the loan.

sierra November 7, 2011 at 3:04 pm

a repair escrow doesnt make sense to me. If I buy a house that has a repair escrow of 2000 and i pay that to my lender at closing, why do I have to pay out of pocket for the repairs then try to get my money back? Why wouldnt I just have to get the repairs done and have it approved? What is the point in paying double for having repairs done?

admin November 7, 2011 at 9:02 pm

Sierra, the repair escrow only applies if you want to purchase a HUD owned property and finance it with an FHA loan. Since you are not allowed to do any repairs on the property prior to closing, this is the only way the lender will approve your mortgage on a property that does not meet underwriting guidelines. I hope this makes more sense now?

Joy November 10, 2011 at 12:35 pm

Does the original Repair Escrow/Disclousure(s) Addendum
as it appeared on the original Hud Listing get included with the closing documents? If not, how does the lender list exactly what repairs are required? Can the lender require any other repairs that were not specifically listed on the original Repair Escrow/Disclousure form?

admin November 10, 2011 at 3:25 pm

Joy, the repair escrow information is posted on for anybody to see. Yes, the lender will know what repairs are required since the repair escrow is information obtained from the FHA appraisal and this appraisal will get passed on the the buyer’s agent you are working with. The lender, upon review of the appraisal, can ask for more repairs to be completed.

rodney November 16, 2011 at 10:10 am

so just to be clear if the repair escrow is 2,000 then you would need to bring that 2,000 to closing to be placed in an escrow? also is there a financing option for the repair escrow for example if the loan is 75,000 could you get the loan for the additional 2,000 to make the loan amount 77,000?

admin November 16, 2011 at 8:31 pm

Rodney, to the best of my knowledge the amount of the repair escrow will be added to your FHA loan amount. Please double check with your lender, but that is how it’s intended to work.

rodney November 17, 2011 at 9:48 am

where can I find the eddendum required for the 100.00 down payment incentive

Lucy January 23, 2012 at 12:28 pm

I brought a HUD house with escrow.. All the repairs are done.. Calling for the final inspection.. As the home owner do I pay the inspection?

admin January 23, 2012 at 12:57 pm

Lucy, when you say “final inspection” do you refer to the appraiser going back out to take a look at the property? By now you should have closed on the properyt, correct? Your lender may charge you a nominal fee for that. You may have to check back with your bank.

Susanne Novak

Beth February 24, 2012 at 12:43 pm

I am looking into buying a HUD home. It is listed for $50k. On the forclosure website it says: FHA finacing- IE (Insured escrow). Then below it says: Repair escrow-$50,000. Above you said that if a home is “Insured Escrow” then the repairs (which will be added to the loan) are going to be less than $5,ooo. So do you think that they made a typo and meant to say $5,000 instead of $50,000? Or do you think that for some reason they are making the home IE, but it really needs more repairs then are normally excepted under IE?

Jack March 27, 2012 at 11:05 pm

Hi, so have i found a listing with S4,400 escrow insured but roofing to drywall is common sense and easy to do for me. my agent told me i have to have an fha approved company do the repairs and not my self. does this sound right or can i still do the repairs and have them come back to inspect it afterwards for my reinbursment? thank you for your time. Sincerely Jack II

dan white May 6, 2012 at 11:04 am

Hello, I have found a hud home 108,000, we missed the bid by 5,000they turned it down. so we have a back up. There inspection stated it needed some sidding work maybe aroof replacment, septics leaking,parts of the deck needs replaced and some outlets are faulty. we still love the home it was a bargain at 100 k. before inspection, it had 2 other inspections and never picked up these issuse. my questions is what would lender base decisions on? The last inspection says ( maybe, it could need, looks like.) it seems flawed. we turned down are offer, the house will probably go down again. or auction.but are still interested if house was 90.000 and 25.000 repairs id take it.

admin May 9, 2012 at 1:21 pm

Hi Dan, typically the lender will base their decision and requirements on the actual appraisal report. Once a bid has been accepted by HUD, the buyer’s agent or the lender can request the existing FHA appraisal. This would only apply if you are going to obtain FHA financing. For any other type of loan no repair escrow is needed, and a new appraisal will be ordered. I hope this helps. Let me know if you have any other questions.

Susanne Novak

Cherie H. June 13, 2012 at 9:04 pm

Has this changed? My lender is now saying that the repair escrow amount is due at closing??

Crystal July 2, 2012 at 1:01 pm

I’m so lost!!! Im in the process of purchasing a HUD home. My Realtor apparently does not know much about it either. I bided on a HUD home for 121k but it has a repair escrow for 3k, should I have bided lower so that I can incorporate the 3k for the repairs. I’m so confused and feel like I have made a bad decision.
Thanks for your time

admin July 2, 2012 at 2:49 pm

Hi Crystal, the appraised value of the home does take into consideration it’s condition, so most likely you did bid a fair amount for the property. If you are obtaining FHA financing for the purchase then the lender will add the amount of your repair escrow to your loan.

jason July 10, 2012 at 10:25 pm

I am looking at a hud home currently it just needs a kitchen sink and a hood/microwave installed. Can i do this myself and just be reimbursed for the installation or do i have to call a plumber or do i have to get a general contractor to do this work?

admin July 12, 2012 at 3:49 pm


This depends on the type of loan you get and your lender. Some of the lenders allow you to do the work yourself, if you get a regular FHA loan with repair escrow. Other lenders will require you hire a licensed contractor. So, talk to them before your submit an offer. They will most likely require an estimate.

With 203k loans you have to always work with contractors.

Rhonda January 11, 2013 at 3:13 pm

After reading all the questions and responses here, I am still not sure if I have to bring the amount of repair escrow to closing. It’s very confusing. I am under contract for a HUD home for FHA financing with $3820 in repair escrow. Do I or do I not have to bring that amount with me to close?

admin January 11, 2013 at 3:30 pm

If you are already under contract, you should ask your lender. We noticed that lenders handle the repair escrow differently. Your lender is really the only one who can give you a definite answer.

Maria June 7, 2013 at 11:03 pm

I am under Hud contract. The repair escrow is $4000. Do I need to get done all the repairs before closing? Also, some of the repairs are very easy to fix…one door to be replace, add some trim to a couple of doors, toilet seat missing…can I do it myself at free charge? How does Hud figure the final cost? I am confused :(

Maria June 7, 2013 at 11:07 pm

How does the closing goes on the Closing Day? I mean , does it take a lot of time? Where do I need to go?

admin June 8, 2013 at 7:44 am

Hi Maria,

Your agent should be attending closing with you and explain the process to you. As the buyer, you can choose which title company you wish to work with. If you area paying cash, closing should not take more than 15 min. If you are using financing, maybe your loan officer will be there for you as well and closing will take anywhere from 20 to 40 min. Make sure to ask your title company or real estate agent to check for delinquent sewer fees or HOA fees if applicable, since HUD will pay those at closing.

admin June 8, 2013 at 7:47 am

Hi Maria,

The repair escrow is copied over from the existing FHA appraisal. You can get a copy of this appraisal as soon as your contract has been accepted. Ask your real estate agent to request it from you. Depending on your lender’s guidelines, you may be able to repair all these items yourself. Check with your loan officer about their required procedure. And no, under no circumstance are you allowed to make any repairs to a HUD owned property prior to closing. I hope this helps.

Maria July 20, 2013 at 1:23 am

i am working trying to close on a HUD property.
On on my second extention becuse I am trying o get a proposal for the scrow repair to add to the 203k loan. I do not no have a closing date yet…Am I risking too much? you think i can lose the house?
would HUD wait for me?

Tyler October 9, 2013 at 8:43 am

I have purchased a HUD home for just under 19k. I is mine and the papers have been signed. I have a Escrow amount of 3k for two issues. I can, will and am correcting the issues myself. I think that the amount is way over blown for these repairs but that isnt my quesion. How long do I have to repair the issues? How long before I can no longer get my excrow of 3k back (if at all)?. in otherwords is there a time limit to correct the issues? If so why(?) the money is mine, I will be paying for it. How can/could a lender keep what I am paying

admin October 9, 2013 at 12:05 pm

Tyler, the repair escrow is not a credit, it is money the lender has to collect prior to closing if the buyer finances the purchase with an FHA loan. If you paid cash for the property, you can disregard this escrow and deal with the repairs as you see fit. There is no time frame that applies to you nor will you get any money back since you did not pay the additional $3,000. Hope this helps.

peter selvey June 16, 2015 at 12:43 am

I am purchasing a hud property,financing 2860 repair escrow thru lender FHA LOAN. I have been informed thru my agent the title compamy wants to hold the repair escrow themselves at one and a half percent. Do i need to select a diffent title company to close with. If i pay cash or finance the repair escrow with lender and have to pay title company 4200.00 at closure how is that possible. Do i need a lawyer or to simply select a different title company. I have no problem with lender, hud process and repair escrow procedure.

admin June 16, 2015 at 12:17 pm

Peter, here are a few more things to know about the FHA loan with repair escrow:

Escrow amount is 110% of total repairs needed to bring house up to FHA Minimum property Standards.
Buyer must qualify for additional funds to be added to loan – otherwise must pay escrow amount in cash (escrow amount is added to the contracted sales price on the HUD-1).
Lender holds escrow.
All repairs are to be completed by the purchaser within 90 days after closing.
Upon satisfactory completion of repairs, lender must disburse escrow to compensate buyer or contractor, as appropriate.
If actual repair costs are less than amount escrowed, balance in the escrow must be applied to reduce outstanding principal balance of the mortgage.
If the escrow is inadequate, or if additional items of repair are discovered at some subsequent date, it is the buyer’s responsibility to bear the additional cost.

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