HUD Home Repairs and 203(k): How to Plan the Work Before You Bid

The short answer

HUD home repairs and 203(k) planning starts before the bid, because HUD sells as-is and fixes nothing. Inspect first. Get contractor bids. If the home is IE, plan for the repair escrow. If the work is bigger, talk to a lender about a Limited or Standard 203(k). Build the repair cost and the extra time into the bid. No work happens until after closing.

The codes themselves are covered in HUD financing codes IN, IE, UI and 203(k). This page is about the repair plan.

Step by step: HUD home repairs and 203(k)

Here's how I run the repair side of a HUD deal.

1. Inspect before anything else. Utilities on, inspector in, sewer scoped. The report is the repair list. See HUD as-is inspections and utilities.
2. Sort the list three ways. Must-fix for the loan. Must-fix for safety or living there. Can wait. Only the first two drive the bid.
3. Get contractor bids before the bid. One or two real contractors, written numbers, scope of work. Guesses sink deals. Line them up early, because getting access to a vacant HUD home takes planning.
4. Read the repair escrow on IE homes. The listing shows HUD's escrow amount for the FHA items. The lender sets it up and holds the money. The work happens after closing, by a deadline. Compare your contractor's number to the escrow. If the real cost is higher, the buyer covers the gap.
5. Pick the renovation loan with the lender. HUD's 203(k) program has two versions. The Limited 203(k) is for smaller, non-structural work. The Standard 203(k) is for bigger jobs and uses a HUD 203(k) consultant. Check the current limits on HUD's 203(k) page. The lender confirms which one fits.
6. Plan the appraisal with repairs. On a renovation loan, the appraiser values the home as it will be after the work. The loan is sized off that, under FHA rules. See HUD home appraisals.
7. Budget the time. Contractor bids, consultant reports and the "after repairs" appraisal all add days. HUD's closing deadline doesn't move for them. See HUD earnest money and closing timeline.
8. Set a reminder for the extension decision. If the 203(k) file is running long, decide early. Extensions follow HUD's process and fees.
9. After closing, start the work. Now the buyer owns it. Permits, contractor, draws on the escrow, and the completion deadline.

Repair plans by situation

General guide only. Loan rules, limits and deadlines are set by the program and the lender. Check the current 203(k) rules at HUD.gov and FHA rules in HUD Handbook 4000.1.

What the buyer can and can't do before closing

Before closing, HUD still owns the house. That means:

• Can: inspect, measure, take photos, bring contractors for bids and bring the appraiser, all through the listing's access process.
• Can: request utility activation the way the listing instructs, and pay what the listing says the buyer pays.
• Can't: start any work, even small fixes.
• Can't: move in, store belongings or change the locks.
• Can't: assume HUD will replace something that goes missing or breaks before closing.

Tell every buyer this on day one. Eager buyers ask to "just paint one room." That's still work. The answer is no.

Utilities and repairs

Utilities matter for repair planning, too. Without power and water, the contractor can't test the furnace, the water heater or the plumbing, and the bid is a guess. Winterized homes need the listing's de-winterize and re-winterize process. Freeze damage after that is a buyer problem. Plan about a week for activation and confirm the steps on the listing.

How to explain it to your client

Watch-outs

• Escrow isn't a gift. The IE escrow covers specific items. If the real cost is higher, the buyer pays the gap.
• Contractor quality. Renovation loans need a contractor who'll do the paperwork and meet deadlines. Vet them.
• Hidden scope. Open walls find more. Keep a contingency inside the budget.
• Deadlines after closing. Escrow and 203(k) work have completion deadlines. Put them on the calendar.
• Condos. Building rules and FHA project approval can limit what's possible. Check before you plan.
• Don't promise the loan works. The lender and the appraiser decide.

Sources

• HUD: 203(k) Rehabilitation Mortgage Insurance
• HUD Handbook 4000.1
• HUD Home Store

Further reading

• Financing a HUD home: IN, IE, UI and 203(k) (denver-hudhomes.com)
• How to buy a HUD home, step by step (denver-hudhomes.com)

Keep going

• HUD financing codes IN, IE, UI and 203(k)
• HUD as-is inspections and utilities
• HUD home appraisals
• How do HUD homes work?

Want to practice this conversation first? The role-play coach lets you run it out loud and get scored.

This is training for real estate agents. It isn't legal, tax, lending or appraisal advice. Program rules change; check the official source. Check with your managing broker.

Frog tip: Pull market stats from the MLS the day you use them, for the client's exact area, price range and home type. Write the date on every number. Learn more →

Questions

Can you make repairs on a HUD home before closing?

No. HUD owns it until closing. The buyer can inspect and get bids, but no work starts until after closing.

Does HUD fix anything on a HUD home?

Generally no. HUD sells as-is. On some homes, HUD has a few specific exceptions like lead paint steps on certain FHA sales. The listing and addenda say.

What's the difference between a Limited and a Standard 203(k)?

The Limited 203(k) is for smaller, non-structural repairs. The Standard 203(k) is for bigger jobs and uses a HUD consultant. Check current limits on HUD's 203(k) page.

Can a 203(k) close in time on a HUD home?

It can, if you start early. Get the contractor bid and the lender moving before the bid. Plan for a possible extension.

Who holds the IE repair escrow?

The lender holds it and releases it after the work is done, under the loan's rules.

Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.