What is an FHA 203B, HUD Repair Escrow?

Repair Escrow for Your Home

An "escrow," in home lending terms, is an account set up and managed by a lender to pay for expenses related to your property. The most common escrow sets aside funds to pay for yearly property taxes and/or homeowner insurance premiums. By having these funds available, the owner and the lender are assured payments are being made and the loan remains in good standing.

Escrow accounts are maintained separately from your home loan balance. They are not always required and are therefore optional, although individual lenders can decide to require it. Even when you are not required to have one, it may be smart to request one. It is a good way to ensure your payments are up to date.

EZ, HUD REO, USDA

These products allow money to be set aside for other purposes. One example is a repair escrow. These are typically made at the time of purchase or refinance. As the name suggests, funds are set aside to take care of repairs or renovations. Sometimes this is a necessary step before closing on a loan.

These escrows often are included as part of a renovation loan. A lender can take the value of purchase or refinance, add the funds needed for repair or renovation, and roll them into a single loan. Such arrangements allow the borrower to avoid paying two sets of closing costs and escape the high interest rates of short-term lending. You can learn more about these other renovation loan options by following these links below:

• EZ "C"onventional Repair Escrow
• HUD REO with Repair Escrow
• USDA Repair Escrow

Pool, weather and buyer/seller repair escrow

While those loans provide a variety of possible improvements, other escrow opportunities benefit your home in more focused ways. These escrow accounts finance specific improvements:

• Pool Escrow – For homeowners who have always wanted a pool to cool off in during summer, this is your chance. These funds can help you add the pool you have always wanted to your backyard. They are available on conventional and jumbo loans.
• Weather-related escrow – If your soon-to-be fantastic house was recently on the wrong side of a hailstorm, this could be the option for you. Available on FHA, conventional and some Veterans Administration loans, they allow you to set aside as much as $3,500 for weather-related or energy-efficient upgrades – either appraiser mandates or personal preference.

One other option is the Buyer/seller-funded repair escrow. In this scenario, the buyer or seller provides the funds that will be used to address the needs of the home. These funds can go to both appraiser-approved and optional upgrades on FHA, conventional, and some VA loans (in cases when the seller is the funder).