Pros Of Buying A Hud Home
HUD homes might not always be deeply discounted. But pricing aside, there can be real benefits to buying one of these houses:
- You don’t have to deal with competition from investors. If youre planning to purchase a home that will be your primary residence, you wont have to worry about investors beating you out with a cash bid. For HUD homes, owner occupant buyers have a 30day window in which investors are not allowed to bid
- You may have assistance with closing costs. HUD may cover buyers closing costs of up to three percent of the purchase price this must be negotiated during the bidding phase
- There is less haggling. When going through the process of buying a HUD home, there is no back and forth with a seller to try to negotiate price. Instead, the highest acceptable owneroccupant offer will be chosen
What is this highest acceptable number? HUD does not say on its website. However, a 2015 analysis of 300 sales nationwide found that on average, houses remained on the market fewer than ten days and sold for more than 95 percent of their list prices.
You are, however, allowed to present any offer you wish.
Next, take a look at some of the potential drawbacks of a HUD home purchase.
What Are Government Foreclosures
Government foreclosures are residential properties that have been repossessed and put up for sale by a government agency. The reasons for these sales can vary. In some cases, a property owner may have obtained a government-sponsored mortgage loan to buy real estate. Several government agencies, such as the Housing and Urban Development Department , the Federal Housing Authority , the Veteran’s Affairs department , offer mortgages to citizens at special rates. However, when a homeowner defaults on their mortgage, these agencies will have to repossess their property and sell it in order to get back the money lost on the unpaid loan.
Of course, there are other reasons government foreclosures are sold as well. Many homes are repossessed and sold by the Internal Revenue Service due to tax debts. In some cases, the U.S. Marshall’s office or Homeland Security department may sell property seized due to criminal activity.
Government foreclosures are sold every day across the nation, and are a key element of the U.S. housing supply. Best of all, government foreclosures offer some of the lowest prices on real estate buyers will find, and can be great opportunities for saving money and making great investments.
Hud Homes: Cost And Condition
HUD homes are appraised and then priced at fair market value. This is based partly on their location. The price of a home in need of repairs is adjusted downward to reflect the investment that a buyer would have to make to improve it and make it habitable.
HUD homes are always sold as-is. That means the buyer is responsible for all repairs and improvements. The best investment you can make on a HUD home is to order a home inspection before you buy one. That way, you’ll know exactly what you’re getting into.
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How To Buy Hud Homes
HUD homes for sale represent a great opportunity for todays buyers. Not only may HUD homes be acquired for a lower price, but the corresponding underwriting on the mortgages are often more friendly and affordable than their conventional counterparts. Qualifying applicants can simultaneously save money on their loan and move into a home they would have otherwise not been able to afford without the help of an FHA loan, which begs the question: How do you buy HUD homes?
Heres a six-step guide to follow when buying HUD homes:
Mind your due diligence: Before shopping for HUD homes, make sure to research your target markets, including comparable sales and potential after repair values. Also, make sure that you understand the bidding process, costs and fees associated with HUD properties, as well as how you will secure financing.
Choose the right Realtor: It should be noted that the HUD does not accept bids from the public. Each bid must be submitted by a licensed broker or agent, so be sure to find the right Realtor to assist you in this process.
Shop for homes by state or zip code: HUD homes for sale are listed on www.hudhomestore.com. Listings can be searched for via state and zip code.
Gather bid information: Make note of important bidding information, such as the bidding period, the period deadline, who is eligible, whether the property is FHA insurable, and whether or not the property has been earmarked as an owner-occupied property.
Buying A Hud Home: What To Expect
If youre interested in purchasing a HUD home, you should understand what this process looks like and how it differs from buying a traditional home. HUD homes are not listed on the Multiple Listing Service, so you wont find them among your average home listings. HUD homes are instead listed on HUDs website, HudHomeStore.com.
Unlike regular homes sold on the market, HUD homes are sold at auction. In order to view and bid on these homes, you must hire a real estate agent who has been approved by HUD. There is a 30-day period of time during which bids from owner-occupant buyers are accepted. Once the period ends, HUD reviews all of the bids and chooses the highest offer. If none of the offers are deemed high enough, the bidding process is extended and opened up to investors.
If yours is the winning bid, HUD will contact your agent to inform you and provide you with a settlement date. You will typically be given 30 60 days to close.
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Hud Owned Property Listings
HUD property listings in Indiana range in price from under $10,000 to the $200,000 range. In general, you can expect to pay anywhere from 10-75% less than the market value when you purchase a government owned home. Use the links below to search for homes based on price to find all of the HUD Indianapolis homes for sale that meet your budgetary needs.
Pros And Cons Of Buying A Hud House
The biggest perk to buying a HUD-owned property is that it will likely mean finding a great deal. In an effort to offload these properties faster, HUD often sells them below fair market value — which is good news for investors looking to buy low and sell high.
HUD properties also come with lower closing costs than other homes, because the Department of Housing and Urban Development covers them up to 5% of the purchase price. Another perk? HUD-owned homes have already been appraised, making for a faster closing process and an earlier move-in.
On the downside, HUD homes can come with serious issues, and they might be hard to finance. Additionally, it usually takes a couple of months to complete the entire process, so if you’re looking for a quick and easy move-in, it’s probably not your best bet.
â¢ You’ll probably get a great deal.
â¢ You won’t face appraisal delays, and you’ll see a faster closing.
â¢ You’ll have part of your closing costs covered.
â¢ Properties are sold as-is and may require some significant repairs.
â¢ There may not be many options to choose from.
â¢ Owner-occupants have first priority, so investors aren’t eligible for every property.
â¢ The home could be hard to finance if it isn’t FHA-insured.
â¢ Closings can take two months or more.
â¢ You can’t make bids or negotiate yourself — it can only be done through a HUD-approved real estate agent.
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Be Realistic About Price
When it comes to financing, be realistic about your price range. The importance of buying a home with feasible mortgage payments and interest rates has proved to be one of the most hard-won lessons of the housing bust. Use online mortgage calculators to determine the monthly mortgage payment you can afford, your estimated closing costs, and a host of other factors that will influence your purchase.
While theres nothing wrong with window-shopping, make sure you secure financing in a timely manner. In a worst-case scenario, buyers find the house of their dreams only to lose it to another buyer because their loan hasnt yet been approved.
Approach mortgage lenders armed with information about HUD resources. Two attractive options include the $100 down-payment program and the 203 rehab and renovation loan, which is expressly designed to finance needed renovations at the time of purchase.
Hud Can Help You Buy The House
If your offer on a HUD home is accepted, HUD may help you pay the closing costs on your mortgage. HUD says it will cover closing costs equal to up to three percent of the sales price. The only caveat is, you cannot use this offer if youre buying the house with HUDs Good Neighbor Next Door Program .
For HUD to pay part or all of your closing costs, you must request assistance on Line 5 of form HUD-9548, the Sales Contract Property Disposition Program.
HUD may also be able to assist with your down payment. The agency wont cover your down payment directly, as it does with closing costs, but HUD does provide funds for other government programs that offer down payment assistance.
Find down payment grants in your state using this resource from HUD.
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Hud Homes For Investors
Once the initial offer to owner occupants expires, HUD homes become available to anyone, include investors looking to buy HUD homes and flip them, or buyers looking to rent the properties for extra income. Multi-unit HUD homes, which are perfect for investment or rentals, are quite common, and can be found anywhere. These properties offer the same low prices as owner-occupant offerings, and as a result HUD homes are some of the most sought after investment properties on the real estate market today.
How Do I Get Started
HUDHomesUSA.org makes finding your next home easy and fast! Let’s get started:
STEP 1: Create your profile: Tell us a little about yourself and the type of home you’re looking for.
STEP 2: Register for instant access to our database of nationwide foreclosure listings.
STEP 3: Search homes & connect with a real estate agent to purchase the home of your dreams.
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How To Buy A Hud Home
For the list of available HUD real estate owned single-family properties, you can visit the HUD Home Store. This site offers the public, brokers, potential owner-occupants, state and local governments, and nonprofit organizations a centralized location where they can search for HUD properties for sale.
It is also the site where registered real estate brokers and other organizations can send bids on behalf of their clients who want to purchase a HUD property.
When youve found a HUD home in Charlotte that you like, contact an HUD-approved real estate broker like me, Nancy Braun. Getting help from an agent who is experienced in HUD homes will make the process easier, and it will save you from stress and headache.
You have to place bids through the HUD-approved Realtor® and the agent will bid on your behalf. You have to get your finances ready because there is a time period where bids are accepted. When that bidding period is over, HUD checks all the bids and accepts the best bid where the agency can get the highest net.
How To Buy Hud Foreclosures
Buying HUD foreclosures can be a fantastic option for anyone looking at buying real estate, but the best deals are often available to those looking to buy a home as a primary residence. After a foreclosure, HUD first offers the property to ‘owner occupant’ buyers. This is part of their goal to increase individual home ownership. The great part about buying a HUD home as an owner occupant is that your competition for the property is only other owner occupants. You don’t have to worry about investors with great sums of money outbidding you. As a result, many homebuyers can secure great deals on HUD homes.
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Don’t Skip The Home Inspection
Home inspections are recommended for any home purchase. This is especially true for foreclosures. You should have a HUD foreclosure property inspected, if only for your peace of mind, before making an offer. It will help you determine a bidding price, especially if repairs are required. It can also tell you whether the home is something you want to get involved with.
Some issues you’ll want to look out for in an inspection include:
- Lead paint hazards, particularly in homes built before 1978
- Asbestos content
- Plumbing issues or failures, including drainage and septic systems
- Buried storage tanks
Homeowners are known to give up on maintenance and repairs to their properties when they know that foreclosure is imminent, so issues might be rampant and easy to detect. You’ll nonetheless want to employ a professional for the job, and your lender will almost certainly require it when you get that far along in the process.
How To Finance A Hud Home
You’ll have to apply for a mortgage or pay cash for your HUD property, because HUD doesn’t finance homes. Your loan must be approved before you can make an offer.
You’re not prohibited from applying for and getting your own FHA loan. You can use a VA or USDA loan also, for that matter. These entities insure mortgages, and they have loan-qualifying guidelines. Again, independent lenders can override them.
The bottom line is that purchasing a HUD home is no different from buying any other home when financing. Compare lenders and terms to find the best mortgage loan for your needs.
You can lose the earnest money deposit you submitted with your offer if your bid is accepted, and you fail to close on the house. However, certain exceptions exist to this rule, such as a death or serious illness in your immediate family. Ask your agent about this possibility before signing the offer.
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How Does Hud Encourage Homeownership
As a cabinet-level federal agency, the U.S. Department of Housing and Urban Development oversees a number of other subsequent departments. Notably, the HUD is the parent department of the Federal Housing Administration . The FHA is a government agency which issues loans backed by the government. Through the FHA, the HUD encourages homeownership for applicants who otherwise wouldnt be able to qualify for an affordable home loan.
Since FHA loans are backed by the government, lenders are exposed to less risk, which means they are able to award low-income borrowers with better underwriting. In particular, FHA loans may be acquired with a down payment as low as 3.5% and a credit score as low as 580. Those who are able to put down more money up front may be able to qualify with an even lower credit score. For context, conventional loans typically require credit scores to be at least 620. Therefore, the HUD encourages homeownership by making it easier for less-qualified borrowers to receive an affordable mortgage.
Buying Hud Homes: Pros And Cons
Buyers may be able to get a great deal on a HUD home. But like any foreclosed home purchase, HUD homes arent without risk. Heres a brief overview of the pros and cons of buying a HUD home:
|HUD Homes: Pros|
No haggling with the seller
HUD homes arent always cheaper
The home is sold asis, in any state
Longterm vacancy can cause issues
You can read about the benefits and drawbacks of buying a HUD home in greater detail below.
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Hud Assistance And Buyer Programs
As part of the home buying process, many of those interested in purchasing property may be on the lookout for first-time home buyer programs or other forms of assistance with their real estate expenses. In order to further motivate individuals to purchase HUD homes, the agency offers these types of incentives to some buyers. Some of the grants, vouchers and buyers programs that HUD offers include:
- Housing Choice Voucher Program : Enables low-income families to afford homeownership by providing a recurring subsidy that assists them in making their monthly mortgage payments.
- One Dollar Program: Allows low- or moderate-income families to purchase HUD homes which have been on the market for over 6 months for only $1.
- Good Neighbor Next Door Program: Helps public servants, like teachers, police officers, firefighters and emergency medical technicians, afford homeownership by providing them with 50% off the purchasing price of homes located in revitalization areas.
- Nonprofit Program: Permits community and religious not-for-profit organizations to buy HUD homes for 30% off, so they can fix them up and resell them to first-time home buyers and financially strapped families.
- HUD $100 Down Program: Makes homeownership possible for owner-occupant buyers by forgoing the typical 3.5% requirement and allowing them to make a down payment of just $100.
If You Know What To Do You Could End Up With A Good Deal
What is a HUD home? While many misconceptions exist, the answer is fairly simple. Under a program run by the U.S. Department of Housing and Urban Development, HUD homes are those that have been acquired by the government due to foreclosure on an FHA-insured mortgage. To recoup the monetary loss on the foreclosure, HUD endeavors to sell these homes to the public.
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Tips And Pointers For Buying A Hud Home
The U.S. Department of Housing and Urban Development oversees multiple national programs however, it doesn’t buy properties or provide mortgage financing. It sells homes that were purchased with FHA mortgages and that have been defaulted on or foreclosed. HUD provides a listing of all such homes in its inventory on its website.
HUD residential foreclosures are available for sale throughout the U.S., but the sales process for purchasing a HUD home is somewhat more complicated than for buying a home from an individual.