This is a very good question. I commend you for looking at the FHA 203B home loan.
However, you may be confusing this with the FHA 203K home loan.
Just to clear this up, if you are purchasing a home using the FHA 230B home loan, the repairs you are referring to may be for something small like painting or some other minor repairs.
Sometimes, when buying a home using the FHA 203B home loan, the FHA inspector may require a repair escrow for some things that need to be repaired before closing. It could be a few hundred dollars or even a few thousand. Keep in mind the FHA 203B is a loan product that can be used on any home purchase even if it is not owned by HUD.
So to answer your question, no it does not have to be a HUD home to use the FHA 203B loan (with a repair escrow).
Now on the other note, if you are buying say a HUD home (or any other for that matter) and you want to use the FHA 203K home loan, this provides for major repairs rather than just minor ones.
Here is a link to a page on my website that explains this a little further, you may want to check it out. The FHA 203K Home Loan is different than the 203B loan with repair escrow.
I hope this helps you. Also you may want to look at my page for the type of loan you are looking for here at Best FHA Home Loans. This page can help you also.
According to the FHA lending guidelines, is it possible for escrow to be paid out of packet instead of rolled into the loan? What are the guidelines for a 2nd time home owner? These are answered below…