Give investment tips and advice.

Things You must Know Before Buying a HUD Home

Things You must Know Before Buying a HUD Home
A HUD home is a foreclosed property. The WealthHow article below enumerates a few things you must know before buying a HUD home.
Buzzle Staff
Did You Know?
As of July 2014, the U.S. Department of Housing and Urban Development (HUD) has initiated a venture called Good Neighbor Next Door (GNND). Through this initiative, HUD sells houses for 50% of the listed price, and that, with the current mortgage rates. And the down payment is just USD 100.

HUD stands for the 'Department of Housing and Urban Development'. They bring about initiatives that help provide assistance for housing. The Federal Housing Administration (FHA) is a government agency, and sets and approves loans given out by all the financial institutions. A HUD home is one that had been bought with an FHA loan, but which has now been foreclosed. The resale of these homes functions differently from that of others. There are certain rules for buying HUD homes. In fact, there are multiple points one needs to consider before the purchase. Read on for some tips on buying a HUD home.
A Background
  • To begin with, understand what a HUD home is.
  • As mentioned in the introduction, it is a home foreclosed by the FHA, and which is now ready for a resale.
  • If you are wondering whether anyone can buy a HUD home, then yes, anyone can. You have to, however, make sure that you actually intend to live there.
  • These homes are not sold through any regular real estate dealer or any other process, they are auctioned through an online process.
  • Therefore, you need to make a bid offer first, and then, if your bid is accepted, you can buy the home.
  • In the paragraphs to follow, you will learn how to buy a HUD home as we share with you some secrets to buying these.
Finding a HUD Home
  • HUD uses property preservation companies to maintain their properties and asset management companies to sell them.
  • To put their properties in the market, they use these asset management companies, which shoulder the entire responsibility.
  • They contact real estate agents to find the HUD homes for sale, put them on the market, set the price, ensure that the bidding is carried on smoothly, etc.
  • A HUD home is first evaluated and appraised, then considering all the points, a market price is set.
  • The home is then put for auction; this period is called ''offer period'.
  • You have to keep a note of this period, for it is during this time that the HUD homes are listed and sealed bids are accepted.
  • The HUD generally accepts the highest bid.
  • If, after the offer period, the home is still not sold, then HUD lowers the price of the property. This continues until an offer is made and the home is sold.
Real Estate Agents
  • So now, after you find a HUD home, you have to hunt for a real estate agent.
  • Bear in mind that HUD home deals cannot be handled by regular estate brokers; you have to find an agent who is registered with the HUD.
  • This selection process has to be done carefully; do not assume that a HUD-registered agent is the best.
  • What you can do is conduct a background research on the earlier HUD home deals in and around your area, and find an agent who has the maximum number of winning bids.
  • If he is unavailable, go in for the second best. Or set up meetings with 2 or 3 agents, and zero in on one of them.
  • You must ask him the deals he has done, his experience, and other related questions.
  • You have to pay your agent a commission as well, irrespective of whether you buy the home or not.
Property Inspection
  • This is an important part of any real estate deal.
  • Another crucial point - you are buying a HUD home that has been foreclosed, that means you are going to get the house as it is.
  • This means no repair, no changes, no extra financing. It will be given to you in the condition in which it was left by the previous owner.
  • Therefore, thoroughly examine the property. It will not be in a 'tip-top' condition anyway, but if it is going to cost you a lot to repair, the deal is going to be a waste.
  • While deciding the price, HUD considers the repair value as well; therefore, the cost will be less than the market value, and will not be a great deal in either case.
  • You can take your agent along as well, for inspection.
  • Check the house for cracks, plumbing, leaking, wiring, etc.
  • If you are satisfied, you may proceed towards the bidding.
The Bidding Process
  • You must know how to apply for a HUD home. When the offer period is open and the property is out in the market, your agent must send a sealed bid to the HUD.
  • The bidding on HUD homes is a major part of the deal, the bids are opened after the offer period.
  • Your agent must keep viewing the website periodically to find out if your bid has been accepted.
  • Generally, the HUD contacts the respective agent if the bid has been accepted.
  • As already mentioned, if the house is unsold even after the offer period, bids are accepted on an everyday basis, and they are opened the next day. The price is reduced as well.
  • Once a bid is accepted, the agent is contacted and the deal moves forward.
  • If you want to cancel your bid, do so before the offer period expires.
Initial Offer
  • Your agent will be notified after your bid is accepted. Or he will find that out himself.
  • Once that is done, you will be signing the deal.
  • You will be given a settlement date, and around 2 months, rather 40 to 60 days from the time you have signed the contract, to close the deal.
  • Keep in mind that you will lose the offer money if you do not buy the house.
  • Around 6% commission is provided to the agent by HUD, if he inserts this clause in the contract, that he has to be paid by the HUD.
Initial Equity and other Finances
  • Remember that HUD is not going to finance your home, you have to arrange all this yourself. Therefore, make sure your finances are in order, before you make an offer.
  • You can contact banks or other financial institutions for loans. However, you will now be eligible to qualify for FHA-financing, which would be a better approach.
  • In fact, FHA offers other good deals too, you can check them all.
  • If you meet the eligibility criteria, you can complete the loan documentation, and provide the necessary photocopies - identity proof, address proof, credit report, etc., faster, and your deal will be closed sooner too.
  • EMTs, teachers, and law enforcement officers receive a discount on HUD homes. If you are one of these, you're lucky.
  • If you have bought a HUD home that needs repairs, you can qualify for the FHA Rehabilitation loan. This will solve your problems of interim loans and permanent mortgage.
  • Through this scheme, you will be offered a single mortgage loan at a long-term interest rate, and this will be sufficient enough to acquire as well as repair your property.
Benefits of Buying a HUD Home
  • One of the main benefits of buying a HUD home is that you qualify for FHA-financing. They offer other discount schemes too, you have an option to choose one that suits your requirements.
  • Nowadays, there are plenty of HUD properties available, and the buyer is spoiled for choice.
  • He can undertake some research and choose to buy a property he wants.
  • Of course, you cannot inspect the property from inside, but certain websites can give you sufficient information about the property so that you know whether it is worth making an offer.
  • You can find a HUD home at a reasonable rate in many areas, in fact, there are government closures in many cities now.
  • If you are an owner-occupant buyer, you have an initial bid period, and this is a potential advantage.
Drawbacks of Buying a HUD Home
  • HUD homes are foreclosed properties, and may not be in the best condition.
  • If you do not qualify for FHA programs, you may have to undertake the cost of repair yourself.
  • The property may very well be listed in the 'not-so-good' neighborhood.
  • You will lose you initial offer money if you do not buy the house.
Additional Points to Remember
  • Check every detail with your agent, and make sure he is properly registered.
  • He will not be registered if he has not submitted a bid in the last three years.
  • If the real estate broker does not have an NAID number, he will need to obtain one from the HUD, which takes about 7 weeks.
  • HUD does not pay for title insurance, you will have to pay it yourself.
  • Buying a HUD home as an investment is allowed if the owner-occupant does not bid on the home.
  • While doing home inspection, utilities such as the heater, electricity, etc., will not be the HUD's responsibility. You will have to take permission of the concerned authorities, and operate the utilities responsibly.
  • If a HUD home is not sold within six months, it is sold at a negligible amount to non-profit organizations, after which it is used to provide accommodation for needy families.
HUD offers many housing initiatives periodically, which everyone can avail, as per their convenience. However, they have their own rules and restrictions, and must be followed regardless. Keep the above points in mind if you intend to buy a HUD home. And make sure you carry out sufficient prior research; you can browse the official site and obtain whatever information you need. Make sure you do not end up in the middle of legal issues.