We’ve talked with you in the past about distressed property sales, and given you some tips on buying these unique homes; the difference between short sales and foreclosures, what to look out for etc. Today I want to talk with you a bit about HUD properties.
HUD stands for “Housing and Urban Development”, as most of you know. You will sometimes see a foreclosure referred to as a “HUD Property”. What this means is that, unlike a run-of-the-mill REO (bank-owned) property, in this instance, the home had an FHA loan that was defaulted upon. When this happens, a bank carrying the loan would file a claim with HUD. Then HUD ends up with the property.
When you decide that you want to make an offer on a HUD property, it is wise to go in armed with some basic information.
- First of all, your Realtor will want to check to see how long the property has been on the market. If it has just gone on the market, you should know that the first 30 days of “bidding” are limited to Buyers who plan to live in the home, i.e. “Owner-Occupied”. After that time elapses, if it is still on the market, it will open up for bids from “Investors” (anyone besides someone who plans to live in it falls into this category).
- The second thing you want to do is decide whether you really want the property. If you do, then some number-crunching is in order, especially if the property has just recently gone on the market. Basically, HUD will start looking at “bids” after day 10, and these days, with the market getting more competitive, Buyers are often offering above asking price in order to compete. Considering that the price on a HUD home is always determined by an FHA Appraisal that HUD has completed prior to listing, it might be wise to offer at least this price if the house is newly on the market, and more if you suspect there will be multiple offers. As always, discuss your options with your Realtor.
- Speaking of this FHA Appraisal, there are significant benefits to a Buyer who secures FHA financing. One being that the appraisal already paid for by HUD can be used, saving a Buyer $450.-$500. or more.
- HUD homes are sold “As-Is”. Really. BUT, If you are getting an FHA loan, there are some interesting options here. If there are basic repairs they are typically noted in the FHA Appraisal, and the appraiser has already assigned a dollar-amount to each item (i.e., “needs stove”, “strap-in water heater” etc). Taking a cap of $5,000. into consideration, these repairs can be added on to the sale price and rolled into the financing by the lender, for repairs to be completed after sale.
- If a HUD home was built prior to 1978, and potentially has lead-based-paint, FHA will pay for a “Lead-Based Paint Stabilization Report”. If it is determined to have lead-based paint, however, my understanding is that the Buyer will need to do a “203-k” or “rehab” loan in order to have the condition remediated. Additionally, the transaction cannot “close” until the remediation paint job is approved by HUD. Discuss these potentialities with your lender rep prior to embarking down the path, so that you are prepared with “Plan B” should you end up in this situation.
- When you have your Realtor check on status/how long the home has been on the market, etc., also make sure to ask about whether the subject property is designated as eligible for the “Good Neighbor Next Door” program. If you are employed as a teacher, EMT, police officer or fire fighter AND the HUD home is one that is eligible, you may be able to end up purchasing it for 50% of what you offer.
- Escrow rules have changed as of January 2013. The Buyer now selects the Escrow office/company that will be handling he transaction. This is good if you or your Realtor have an escrow officer or company that you prefer, however, please note that the Buyer also has to pay ALL escrow fees, even those traditionally paid by the Seller. Talk to your Realtor about the possibility of asking for your closing costs to be paid, and whether or not this might be a good solution for you.
As always, you’ll want to choose a Realtor who understands the ins & outs, helps you determine if a HUD property is right for you, and if so, helps you navigate gracefully around potential pitfalls.
I hope that this information has been helpful. Granted, I just touched on an overview of things you might want to take into consideration. For more information on HUD Properties, visit: www.HudHomeStore.com . There is an FAQ section there that will answer many of your questions.
Very Best to you!
Linda