How To Buy A HUD Home
HUD homes are houses acquired by the U.S. Department of Housing and Urban Development (HUD). If a foreclosed home was purchased with a loan insured by the Federal Housing Administration (FHA), the lender files a claim for the balance due on the mortgage. The FHA pays the claim, then transfers ownership of the property to HUD, which sells the home. The properties include single family homes, townhouses and condos, and often are in poor condition.
HUD homes are priced at fair market value for their location based on appraisal. If the home is in need of repairs, the price is adjusted according to the cost of repairs the buyer will have to make. HUD homes are typically less expensive than regular houses, so buyers can get more space for less money. Teachers and police officers are given a 50 percent discount on HUD homes. Investors often purchase HUD homes to fix up themselves and sell at a profit. HUD homes are sold as-is – HUD is not responsible for repairs and improvements.
You can view HUD listings on their Web site at www.HUDPropertiesAnneArundel.com There are links to each state’s particular HUD web site. The HUD and state Web sites list agents who work with HUD homes, because only a registered HUD real estate broker can show you a HUD property – you can’t buy it without going through one of these agents. You may also see properties for sale with a HUD sign in the window.
The buying process on a HUD home is different from the usual residential real estate transaction. HUD foreclosures are sold using a bidding process. There's an Offer Period, during which sealed bids are accepted from agents – no bids from private buyers are accepted. When the period is over, HUD accepts the highest bid. Unlike conventional home sales, there is no negotiating on price between buyer and seller.
If your bid is accepted, your agent is notified, and you’re given a settlement date, usually 30-60 days from the date of your accepted contract. HUD pays real estate agencies up to 6 percent commission for the sale of the home, but only if specific wording is added to the contract verifying that HUD will pay commission.
Before submitting a bid, buyers must be pre-approved for financing. You must make application and have a conditional loan commitment from a qualified lender. Since HUD itself does not provide financing, you must arrange for conventional financing. Again: your financing must be in order before you make a bid, because if your bid is accepted, and your financing falls through, you’ll lose the earnest money deposit you made with the bid. If you plan to pay cash, you’ll need to provide sufficient evidence that have the means to purchase the home, such as a bank statement, deposit slip, or a letter signed by a banker.
A home inspection is imperative before any home purchase, but especially so for HUD foreclosures. There are repair issues as well as environmental factors – asbestos, buried storage tanks, lead paint. These factors will help you determine a bidding price, especially if repairs are required. If an offer is accepted, the buyer has 15 days to complete any inspections. Also, it is the buyer’s responsibility to pay for the utilities to be turned on. And again, if defects are found, HUD will not make or pay for the repairs. It will probably lower the purchase price, however. If you are an investor HUD doesn't allow an Inspection Period.
Foreclosures not sold within six months are sold for $1 each to approved nonprofit organizations and government agencies. These homes are required to be used for housing for needy families, charitable enterprises or to benefit neighborhoods. And, as stated above, HUD offers foreclosed homes to teachers and law enforcement personnel for 50 percent off the purchase price.
As a potential HUD home buyer, remember the following:
l You must use the services of a HUD registered real estate broker, like myself
l You must be pre-approved for a mortgage or show evidence of adequate cash reserves to purchase the home.
l Owner-occupied bidders receive the first priority to purchase HUD homes. Typically its exclusive for first 15days, then investors are able to bid.
l HUD offers three types of properties: FHA insurable homes, FHA insurable homes with a repair escrow and homes hat are not insurable with an FHA loan.
l You do not have to finance a HUD home with an FHA loan.
l HUD homes are sold "as-is."
l Before making a bid on a HUD home, you must provide your HUD registered real estate broker (like myself) with the appropriate earnest money in the form of a cashiers check or money order.
l If the purchase price is $50,000 or less, the amount of the earnest money required is $500. If the purchase price is greater than $50,000, the amount is $1,000.
l Your earnest money check should be made payable to a HUD Certified Title Company. Check is typically given the the Listing agent, then the listing agent forwards it to the Title company.
If I can assist you with submitting a HUD offer you can reach me direct 443-306-5050
Happy House Hunting Elizabeth Penttinen