Page 514
o. HUD Real Estate Owned Purchasing (09/20/2021)
i. Definition
(A) HUD REO Property
A HUD Real Estate Owned (REO) Property, also known as a HUD Home or a HUD- owned home, refers to a one- to four-unit residential Property acquired by HUD as a result of a foreclosure or other means of acquisition on an FHA-insured Mortgage, whereby the Secretary of HUD becomes the property owner and offers it for sale to recover the mortgage insurance claim that HUD paid to the Mortgagee.
(B) Insured HUD REO Property Purchase
An Insured HUD REO Property Purchase refers to the purchase of a HUD REO Property by a Borrower with a new FHA-insured Mortgage.
(C) Insured HUD REO Property Purchase Programs
(1) Section 203(b)
The HUD REO Property meets HUD’s Minimum Property Requirements (MPR) in its as-is condition with no repairs, alterations, or inspections required.
(2) Section 203(b) with Repair Escrow
The HUD REO Property does not meet HUD’s MPR in its as-is condition, but if repairs of no more than $10,000 are completed, the HUD REO Property would meet HUD’s MPR. An escrow account to complete the repairs necessary to meet MPR after closing is required.
The Mortgagee must comply with the Repair Completion Escrow Requirements.
(3) Section 203(k)
The HUD REO Property does not qualify for Section 203(b) or Section 203(b) with Repair Escrow, and is eligible for FHA-insured financing only under Section 203(k).
(D) Special Sales Incentives
(1) Good Neighbor Next Door
The Good Neighbor Next Door (GNND) sales incentive permits an Owner- Occupant Borrower who is a full-time law enforcement officer, teacher, firefighter, or emergency medical technician who meets HUD requirements to purchase a specifically designated HUD REO Property located in a HUD- designated Revitalization Area with FHA-insured financing at a 50 percent
Page 515
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - HUD Real Estate Owned Purchasing (09/20/2021)
discount from the purchase price. When using FHA-insured financing, the Borrower may purchase the HUD REO Property with a minimum downpayment of $100. In addition, the Borrower may include in the mortgage amount customary and reasonable closing costs.
GNND purchases may be processed as Section 203(b), Section 203(b) with Repair Escrow, or Section 203(k).
(2) $100 Down
The $100 Down sales incentive permits a Borrower to purchase a HUD REO Property with FHA-insured financing with a minimum downpayment of $100.
$100 Down purchases may be processed as Section 203(b), Section 203(b) with Repair Escrow, or Section 203(k).
ii. Sales Contract
(A) General Requirements
The Mortgagee must obtain form HUD-9548, Sales Contract Property Disposition Program, and any applicable addenda, which will establish the purchase price, price discount, eligibility for GNND and eligibility for $100 Down, and meet the requirements for the Sales Contract.
(B) Contract Sales Terms
Line 4 of the sales contract will specify the Insured HUD REO Property Purchase Program under which the Borrower is applying, the downpayment, and the mortgage amount.
Regardless of the Insured HUD REO Property Purchase Program entered on Line 4 of form HUD-9548, the Mortgagee must determine the eligibility of the Property, the eligibility of the Borrower, and the specific Insured HUD REO Property Purchase Program that must be used to finance the purchase.
(C) Good Neighbor Next Door
Where the Borrower is approved for the GNND sales incentive, Line 8 will specify the discount that will be applied to the purchase price on Line 3. The amount of the cash downpayment specified on Line 4 will be $100.
(D) Eligible Nonprofit or State or Local Government Agency Borrower
Under certain circumstances, eligible nonprofit or state and local government agency Borrowers may purchase Properties at a discount from the stated listing price. Line 8 will specify the discount that will be applied to the purchase price on Line 3.
Page 516
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - HUD Real Estate Owned Purchasing (09/20/2021)
(E) $100 Down
Where the Borrower has been approved for the $100 Down sales incentive, the amount of the cash downpayment specified on Line 4 will be $100.
(F) Closing Costs and Sales Commissions Paid by HUD
The amount on Line 5 specifies the amount of closing costs that HUD will pay on behalf of the Borrower. The amounts on Line 6a and 6b represent the sales commissions HUD will pay to the selling and listing broker.
Contributions by HUD toward the Borrower’s closing costs are not defined as Interested Party Contributions (TOTAL or Manual) or Inducements to Purchase (TOTAL or Manual).
iii. Ordering Case Numbers
(A) Section 203(b) and Section 203(b) with Repair Escrow
Mortgagees must order case numbers for Insured HUD REO Property Purchases in accordance with Ordering Case Numbers.
Mortgagees must select “Real Estate Owned w/Appraisal” for Processing Type and enter the case number of the HUD REO Property in the Prior Case Number field. The HUD REO Property case number can be found on the top right-hand corner of form HUD-9548.
(B) Section 203(k)
Mortgagees must order case numbers for Insured HUD REO Property Purchases in accordance with Case Number Assignment Data Entry Requirements.
Mortgagees must select “Real Estate Owned w/Appraisal” for Processing Type and enter the case number of the HUD REO Property in the Prior Case Number field. The HUD REO Property case number can be found on the top right-hand corner of form HUD-9548.
iv. Appraisals
(A) Ordering Appraisals
(1) Section 203(b) and Section 203(b) with Repair Escrow
Mortgagees must order appraisals in accordance with the requirements of Ordering Appraisals.
Page 517
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - HUD Real Estate Owned Purchasing (09/20/2021)
(2) Section 203(k)
Mortgagees must order appraisals in accordance with the requirements of Ordering Appraisals and Appraisals for Standard 203(k) and Limited 203(k).
(B) Appraisal Review and Property Acceptability
The Mortgagee must review the appraisal and property conditions in accordance with the requirements of Underwriting the Property.
v. Occupancy Types
(A) Principal Residence
An Owner-Occupant Borrower may purchase HUD REO Properties using Section 203(b), Section 203(b) with Repair Escrow, and Section 203(k).
(B) Investment Property
(1) Eligible Nonprofit or State or Local Government Agency Borrower
An eligible nonprofit or state or local government agency Borrower may purchase HUD REO Properties using Section 203(b), Section 203(b) with Repair Escrow, and Section 203(k).
(2) Investor Buyer
A Borrower may purchase HUD REO Properties as Investment Properties using Section 203(b) or Section 203(b) with Repair Escrow. These transactions must be scored through TOTAL Scorecard and then manually underwritten. The Mortgagee must downgrade and manually underwrite any Mortgage that received an Accept recommendation through TOTAL.
vi. Maximum Mortgage Amounts
(A) Section 203(b)
Mortgagees must calculate the maximum mortgage amounts in accordance with the requirements of Calculating Maximum Mortgage Amounts for Purchases, using the applicable Loan-To-Value ratio (LTV) from this section, subject to LTV Limitations Based on Borrower’s Credit Score.
(1) Owner-Occupant Borrower
The maximum LTV is 96.5 percent.
Page 518
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - HUD Real Estate Owned Purchasing (09/20/2021)
(2) Eligible Nonprofit or State or Local Government Agency Borrower
The maximum LTV is 96.5 percent.
Where the eligible nonprofit or state or local government agency Borrower purchases the HUD REO Property at a discount, Mortgagees must calculate the discounted purchase price in accordance with the requirements for calculating the discounted purchase price for GNND transactions. The discounted purchase price must be used when determining the Adjusted Value.
(3) Investor Buyer
The maximum LTV is 75.0 percent.
(B) Section 203(b) with Repair Escrow
Mortgagees must initially calculate the mortgage amount in accordance with the requirements for Section 203(b) above. Mortgagees must add to the amount resulting from that calculation the amount of an escrow account for the completion of repairs after closing.
The maximum escrow amount must be based on the sum of the repairs required to meet the intent of HUD’s MPR, plus a 10 percent contingency. The total escrow amount, including the 10 percent contingency, must not exceed $11,000.
The Mortgagee must comply with the Repair Completion Escrow Requirements.
(C) Good Neighbor Next Door
(1) Discounted Purchase Price
Mortgagees must calculate the discounted purchase price and use that amount as the purchase price in determining the Adjusted Value for a 203(b) transaction or the Adjusted As-Is Value for a 203(k) transaction.
The discounted purchase price is calculated by reducing the contract sales price on Line 3 of form HUD-9548 by the discount percentage on Line 8 of form HUD- 9548. To that amount the Mortgagee must add:
• sales commissions from Line 6 of form HUD-9548; and
• any Borrower-paid closing costs (including prepaid items).
(2) Section 203(b)
Mortgagees must calculate the maximum mortgage amount by subtracting $100 from the Adjusted Value.
Page 519
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - HUD Real Estate Owned Purchasing (09/20/2021)
(3) Section 203(b) with Repair Escrow
Mortgagees must calculate the maximum mortgage amount by subtracting $100 from the sum of the Adjusted Value plus 110 percent of the estimated cost of repairs, not to exceed $11,000.
(D) $100 Down
(1) Section 203(b)
Mortgagees must calculate the maximum mortgage amount by subtracting $100 from the Adjusted Value.
(2) Section 203(b) with Repair Escrow
Mortgagees must calculate the maximum mortgage amount by subtracting $100 from the sum of the Adjusted Value plus 110 percent of the estimated cost of repairs, not to exceed $11,000.
(E) Section 203(k)
(1) Owner-Occupant Borrower
Mortgagees must calculate the maximum mortgage amount in accordance with the requirements of Section 203(k) Maximum Mortgage Amount for Purchases.
(2) Eligible Nonprofit and State and Local Government Agency Borrower
Mortgagees must calculate the maximum mortgage amount in accordance with the requirements of Section 203(k) Maximum Mortgage Amount for Purchases.
Where the eligible nonprofit or state or local government agency Borrower purchases the HUD REO Property at a discount, Mortgagees must calculate the discounted purchase price in accordance with the requirements for calculating the discounted purchase price for GNND transactions. The discounted purchase price must be used when determining the Adjusted As-Is Value.
(3) GNND and $100 Down
The maximum mortgage amount that FHA will insure on a GNND 203(k) purchase is the lesser of:
• the Adjusted As-is Value, plus:
o Financeable Repair and Improvement Costs, for Standard 203(k) or
Limited 203(k);
o Financeable Mortgage Fees, for Standard 203(k) or Limited 203(k);
o Financeable Contingency Reserves for Standard 203(k) or Limited
203(k);
Page 520
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - HUD Real Estate Owned Purchasing (09/20/2021)
o other Borrower-paid closing costs, including prepaid items; and
o Financeable Mortgage Payment Reserves, for Standard 203(k) only;
o minus $100; or
• 110 percent of the After Improved Value (100 percent for condominiums), minus $100; or
• the Nationwide Mortgage Limits.
vii. Additional Section 203(b) with Repair Escrow Requirements
(A) FHA Connection Insuring Application
The Mortgagee must check “Yes” in the Escrow Data field. The Mortgagee must enter the amount of the escrow, including the contingency, in the HUD REO Repair Amount field.
(B) Required Documentation
The Mortgagee must comply with the Repair Completion Escrow Requirements.
viii. Additional GNND Requirements for FHAC Insuring Application
(A) Repair Escrow
If insured under Section 203(b) with Repair Escrow, the Mortgagee must check “Yes” in the Escrow Data field. The Mortgagee must enter the amount of the escrow, including the contingency, in the HUD REO Repair Amount field.
(B) Required Documentation
The Mortgagee must comply with the Repair Completion Escrow Requirements.
(C) Sales Price
Mortgagees must enter the discounted purchase price.
(D) Secondary Financing
Mortgagees must complete information regarding secondary financing by entering:
• “Yes” in the Secondary Financing field;
• the amount of the discount by which the sales price was reduced in the Amount field;
• “Federal Government” in the Source of Funds field; and
• “HUD GNND” in the Source Name field.
(E) $100 Down
In the $100 REO Down Payment Program field, Mortgagees must enter “Yes.”
Page 521
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - HUD Real Estate Owned Purchasing (09/20/2021)
ix. Additional $100 Down Requirements for FHAC Insuring Application
In the $100 REO Down Payment Program field, Mortgagees must enter “Yes.”
Page 522
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums (11/10/2026)