In the past 12 months, I have been showing and selling many more HUD properties. I would estimate that 1 in 10 of the REOs out there are HUD listings up from 1 in 100 just a few years ago. The process is much different from buying a typical REO and you need an experienced agent that can help you navigate through the differences in the process. I thought I would try to outline some of the unique aspects of the HUD home buying process. HUD (which is the Department of Housing and Urban Development) has foreclosed homes all around the United States.
What is a HUD Home? Many of these houses were originally purchased with a FHA mortgage which is insured by the Federal government via mortgage insurance. When the bank forecloses on the property, the bank files a claim on the insurance for the amount of the mortgage due. HUD pays the bank and then takes ownership of the home. This is very much like if you totalled your car: your bank gets the money owed on the car and the insurance company gets the car and you are done.
How much do HUD homes cost? While HUD homes are supposed to be priced at market values minus any repairs needed, I have found that they are often priced 5-10% below the other REOs on the market. They can be a great value, despite the repairs needed.
Will HUD make the repairs? HUD homes are sold as-is, but I have seen HUD install new furnaces or repair the plumbing so that these homes can be sold to owner occupants using FHA financing. This work is usually done prior to the home-coming on the market. The new owner is responsible for all repairs and improvements that are not done at time of showing.
Where can I find a HUD home? All HUD properties are listed on the MLS using a Minnesota real estate broker. Other than a mention in the agent remarks, they are not noted any differently. Additionally, all HUD properties around the US can be found at HudHomeStore.com. This is a great place to see as much information about the property as available. To see a HUD home, you need to work with a HUD-approved real estate agent (like me!) in that area. We can get you access to the home. HUD does NOT work with any buyers directly.
How do I make an offer on a HUD property? Your HUD-approved real estate agent will submit your offer for you. It is all done electronically on the HUD website. There are initially no documents to sign or fill out. Each home will have different bidding periods such as: first 10-30 days for owner occupants, non-profits, and government agencies only. After that all bidders are accepted. Bids submitted on-line are all compiled up till midnight of the previous day. At that time, all those are reviewed and countered or accepted before any new offers are reviewed the next day. Thankfully, you should know within 1 business day if you offer is accepted or countered. If your offer is accepted, your experienced agent will need to insure that they fill out all the documents correctly and submit them within 24 hours of your offer will be rejected. This can be a frustrating process to make sure all signatures are original ink and all documents are filled out correctly and included. Closing a HUD home Closing are done by the HUD designated title company. The closing always scheduled exactly 45 days after the acceptance. It doesn’t matter if you are paying cash and could close tomorrow, HUD waits 45 days. Additionally, HUD does not allow any changes to the offer after submission, so no name changes, no buyer adds or removals, and no change of cash vs financed offers.
Will HUD finance the home? No. You will need to bring in your own financing. As mentioned above, many HUD homes have been repairs so that they can get FHA financing, make sure to confirm this prior to submitting your offer (your agent should help you).
Can I do an inspection? Yes, but the process is vague. I recommend you do your inspection prior to offer. Investors will forfeit any earnest money and owner occupants will get only 50% of it back for cancelling because of inspection results.
Are there any special programs with HUD homes? If the homes are not sold within six months, HUD will sell them for $1 each to approved nonprofit organizations and government agencies. The homes must then be used create housing for families in need or to benefit neighborhoods. HUD also offers special home purchase programs for teachers and full-time law enforcement officers. Buying a HUD home for either investment or your personal home can be a great value, but you need to work with a qualified agent to hold your hand through the process.
As you can see, buying a HUD property is a different process and you need an agent that can navigate the landmines. Give me a call and we can discuss!
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