source:
  type: guide
  id: hud-4000-1-ii-o-hud-real-estate-owned-purchasing
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — o. HUD Real
    Estate Owned Purchasing (09/20/2021)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — o. HUD
    Real Estate Owned Purchasing (09/20/2021).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-o-hud-real-estate-owned-purchasing-full
  canonical_id: hud-4000-1-ii-o-hud-real-estate-owned-purchasing-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — o. HUD Real
    Estate Owned Purchasing (09/20/2021)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — o. HUD
      Real Estate Owned Purchasing (09/20/2021)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: '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 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) Handbook 4000.1 495 Last Revised:
      11/26/2025 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. 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) Handbook 4000.1 496 Last Revised:
      11/26/2025 (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. 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) Handbook 4000.1 497 Last Revised:
      11/26/2025 (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. 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) Handbook 4000.1 498 Last Revised:
      11/26/2025 (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. 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)
      Handbook 4000.1 499 Last Revised: 11/26/2025 (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); 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) Handbook 4000.1 500 Last Revised:
      11/26/2025 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.” 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)
      Handbook 4000.1 501 Last Revised: 11/26/2025 ix. Additional $100 Down Requirements
      for FHAC Insuring Application In the $100 REO Down Payment Program field, Mortgagees
      must enter “Yes.” II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
      II Insured Housing Programs Forward Mortgages'
  judgment: false
