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Are HUD homes a good deal?
HUD homes can be a very good deal although there is a maze of bureaucracy and specialized paperwork to get one of these homes. As you probably know from filing your taxes or visiting your local DMV for a new drivers license, the government has their own way of doing things. Nevertheless, the U.S. Government is up to its eyeballs in repossessed homes. There are growing numbers of FHA and VA insured loans that have gone bad and HUD is responsible for disposing of these homes and getting them off the government's books. The inventory of HUD homes is growing by the day. And it costs the government millions of dollars to hold these HUD homes. Uncle Sam wants to move them out. This is a golden opportunity for real estate investors and owner occupants to cash in on a bulging inventory of houses that shows no signs of slowing down! As an investor, you can get below-market prices on HUD homes and resell for ten of thousands of dollars in profits! As a homeowner, you can get a below-market price, priority bidding and often an easier loan process!
How does HUD get these homes?
When someone with a FHA-insured mortgage doesn’t make the payments, the lender forecloses on the home. HUD then pays the lender what is owed and HUD takes ownership of the home. Then HUD offers it for sale at market value based on a recent appraisal (BPO.) HUD then sells it at market value as quickly as possible. HUD homes generally sell very quickly and at prices above the initial listing price. HUD homes on average sell faster than most privately owned real estate indicating greater demand. In addition, there are opportunities to enhance value by making improvements.
Real Estate Owned (REO) by Government Agencies and Mortgage Lenders presents a variety of challenges following a foreclosure. This is because these entities did not originally plan to come into ownership of these properties. Now that the homes are in their portfolios, they are motivated to sell them as soon as possible. These homes include one-to-four unit properties.
Market demand for these affordable houses continues to increase. In addition to very competitive prices, HUD sometimes pays for closing costs up to 5%, plus other costs like the appraisal and termite inspection if you are getting an FHA loan. This makes the homes even more affordable.
What are the listing and bidding procedures?
Owner Occupant – Properties are listed to the general public every Friday. New listings are offered to “Owner Occupant” bidders for the first 10 days (bid deadline 11:59 pm on the 10th day.) On the 11th day all bids will be reviewed and the highest acceptable net to HUD bid will be acknowledged by 12:00 pm. Once an acceptable bid has been acknowledged, the winning bidder will have 48 hours to submit a sales contract for review.
All Bidders – On the 11th day properties will also roll over into the “All Bidders” priority (Investors), at this point investors can place a bid on the property, but investor bids will not be reviewed until the 12th day. On the 12th day, HUD will post bid results by 12:00 pm from the “All Bidders” priority. If no bids meet HUD’s requirement as an acceptable offer, the property will stay on the market until an acceptable offer is submitted. All bids will be checked daily until an acceptable offer is received.
Who can buy a HUD Home?
Almost anyone! If you have the cash or can qualify for a loan (subject to certain restrictions) you may buy a HUD Home. HUD Homes are initially offered to owner-occupant purchasers (people who are buying the home as their primary residence). Following the priority period for owner occupants, unsold properties are available to all buyers, including investors.
How are HUD Homes sold?
Management companies under contract to HUD list HUD homes for sale. Any real estate broker registered with HUD may submit an offer and contract to purchase on your behalf. HUD pays the real estate broker's commission, if included in the contract.
Are there any special programs?
Properties in designated areas are available at a reduced sales price to police officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments. These are referred to as Good Neighbor Initiatives.
Should I get a home inspection?
HUD encourages you to get an inspection after your offer is accepted. All HUD Homes are sold AS-IS, without warranty. HUD will not make repairs nor pay to correct any problems.
What about financing?
Although HUD does not offer financing directly, some of our homes qualify for FHA-insured loans. Shop around for a lender to find the best loan terms. Find out how an FHA loan can help you.
What are Listing Types?
Listing types describe the property’s overall condition and other pertinent factors that indicate the best FHA financing for a property. They are as follows:
Insurable Listings (IN) - Properties listed as "IN" are in sufficiently good condition to qualify as collateral for an FHA 203(b) loan. This is the most common and simplest type of FHA loan.
Insurable-Escrow Listings (IE) - Properties listed "IE" have a repair escrow that is established using extra funds borrowed by the purchase from the FHA lender to enable these properties to be eligible for an FHA 203(b) loan. The house will have up to $5,500 worth of repairs (including a 10% contingency) made within ninety (90) days or less after closing to meet "Minimum Property Standards" (MPS). After closing, the purchaser then must use the money in the escrow account that the lender has added to the loan amount to have the specific MPS repairs made that are required to bring the property up to meet MPS requirement condition to qualify as the estimate of costs to repair, and is reflected in the property listing on the web site along with the items requiring repairs. Any funds in the escrow account that are left over after the lender has made an inspection to be sure the repairs are complete may reduce the principal balance of the loan, or with lender approval, may be used to make additional improvements to the house. Note: If a buyer for an IE listing does not use FHA financing, no repair escrow will be made available.
Uninsurable Listings (UI) - Properties listed "UI" have more than $5,500 (including the 10% contingency) worth of repairs, or if the purchaser wishes to make more extensive renovations, FHA 203(k) financing is often appropriate. In these cases, the FHA-approved appraiser's value is the "as is" amount and the purchaser gets estimates from contractors for the renovations. The lender then gets an "as repaired" appraisal based upon the cost estimates supplied by the purchaser's contractors. If the house will be worth the total of the "as is" value and the costs to rehabilitate or renovate, then the FHA 203(k) lender can make one loan that will include both the acquisition and the rehabilitation money, assuming the buyer/borrower qualifies to repay that amount of a loan. Knowing a good FHA lender with 203(k) experience is essential for this type of sale to work.
Contact “The Real Estate CPA” with any questions on this program at (609) 203-6856.
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