What Is A HUD Home?

What is a HUD Home?
A HUD home is a 1 to 4 unit residential property acquired by HUD as a result of a foreclosure action taken on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim. HUD HOME

Who can buy a HUD Home?
Almost anyone! If you have the cash or can qualify for a loan (subject to certain restrictions) you may buy a HUD Home. HUD Homes are initially offered to owner-occupant purchasers (people who are buying the home as their primary residence). Following the priority period for owner occupants, unsold properties are available to all buyers, including investors.

If you are an evacuee displaced by Hurricane Katrina, Rita or Wilma, HUD could sell a HUD home at a discount to you!

How are HUD Homes sold?
All HUD properties available for purchase by the public are offered for sale at Internet listing sites maintained by management companies under contract to HUD. Any real estate broker registered with HUD may submit an offer and contract to purchase on your behalf. HUD pays the real estate broker’s commission, if included in the contract.

Are there any special programs?
Properties in designated areas are available at a reduced sales price to law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments. Read more about these Good Neighbor Initiatives.

Should I get a home inspection?
We encourage you to get an inspection after your offer is accepted. All HUD Homes are sold AS-IS, without warranty. HUD will not make repairs nor pay to correct any problems.

What about financing?
Although HUD does not offer financing directly you can apply for an FHA mortgage loan to purchase a HUD Home thru an FHA approved lender. Prequalification is Free, and should be your first step in the home purchase process.


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How To Buy HUD Foreclosures

Foreclosures are more common these days, finding a foreclosed property to buy has become a lot easier than it was during the housing bubble. When home prices were increasing in the double digits annually and anyone could qualify for a mortgage , the supply of foreclosed homes was low. Now the the housing bust has arrived in full force, the supply of California foreclosures, Florida foreclosures and Texas foreclosures has gone through the roof. Foreclosures in other states are not that plentiful as those three states but finding one is still easy in any state.

There are several ways to find a foreclosed property, you can go to an auction, buy directly from a bank, from government entities such as Fannie Mae and Freddie Mac. The Department of Housing and Urban Development has a list of government entities that sell foreclosed homes.

Buying a foreclosure at auction can be risky because you usually have a limited amount of time you can inspect the property, sometimes you can’t inspect it at all. You have to come up with the money to purchase the foreclosure pretty quickly. You also have to bid for the property, which can be exciting but you don’t want to get caught up in the excitement and overpay for the property. Buying a foreclosed property directly from a bank is the best option.

Since foreclosures are so common these days banks are also listing foreclosures on the Realtor Multiple Listing Service (MLS), making the process even easier than contacting individual banks.

Some real estate brokers specialize in foreclosed properties. When you search the MLS for foreclosed homes, look for “Real Estate Owned (REO)”, these are properties owned by banks. Buying REO properties will take longer than buying a home from an individual, so be prepared for a long drawn out process. If you have the time, the savings on a foreclosed home directly from a bank can be substantial.

It’s not uncommon to save 30% to 50% of market price since banks have so many properties on their books they want to unload. The condition of foreclosed properties are a lot better than they have been in the past so finding a foreclosed home in livable condition isn’t hard. If you are buying a foreclosure it’s good to budget for unexpected expenses so factor in having some cash on hand affer your home purchase.

 

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The 3 Different Types Of HUD Foreclosure Homes

As you look for HUD foreclosure home, you will find plenty of great deals. But it may also seem a bit overwhelming to see the sheer quantity of homes, areas to search through, and types of hud homes you can buy.

How to make a decision?

Sure, if you, your spouse and two children will be residing in the property the search becomes a lot more focused. First of all, you’ll be most likely searching locally, not nationwife. Most people are tied to their jobs, the children’s schools, and their local social circles. This may not apply if you’re ready to relocate, but even then it will be your personal preference and your lifestyle options that will dictate the home selection.

However, if you’re buying to invest, and you’re searching nationwide, then you’ll find this article useful.

There are basically three specific types of homes, and three specific “exit strategies” that each of these types of property is best suited for.

The first type of home is the “move-in ready” hud foreclosure home. This home looks like a rental. The carpets may be a tad worn (or not), and maybe one or two walls need paint touchups. But barring that, the kids can go straight on in and choose bedrooms, and Rover can go play in the back yard. You can start unloading the U-Haul and bringing in furniture. That’s what we call “move-in ready.” This home is ideal if you’re looking to do an immediate “flip” – for example if you’re doing a simultaneous closing (an instance where you’ve found a home, found a buyer, and basically you’re just helping close the deal, and your profit is the difference of what you’ve agreed to buy it for and what your buyer has agreed to buy it for.)

The second type of hud home is the “lipstick” property. By lipstick we mean that some cosmetic work is to be expected. This could include replacing some carpet, doing some landscaping, repainting the exterior, regrouting the shower or replacing appliances. These improvements are relatively easy to do, and do not involve a permit. Lipstick properties are great rentals. You buy the home, immediately advertise it for rent, and proceed to do the needed improvements. Within a month’s time you can have your tenant moving in.

The third type of hud foreclosure home is the ugly duckling, the one with the boarded-up windows, the damaged roof, etc. This one is the fixer-upper, and believe it or not, the one you may end up making the most money on.

This third type of home signals that no one is committed to the property, nobody is invested in it. The property has fallen into a bad state of disrepair though carelessness or disinterest. This affords you the opportunity, simply by being the one that DOES care, to profit tremendously – through some hard work and good planning.

The repairs on this home are likely to require a permit. You may gut the internal walls completely, and start from scratch. You may need to repartition the floorplan. The roof may need replacing, a new staircase may need to be put in. Let’s face it, the next two months after the purchase you won’t be going on vacation, you’ll be hard at work revamping this place.

But somewhere between 30 and 90 days you’ll have this place ready to sell. And the profit margin on this type of property can be nothing short of spectacular.

So don’t be afraid of the ugly duckling. It may turn out to be the goose with the golden eggs!

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Short sales on the rise

 

 

Short sales on Fannie Mae and Freddie Mac homes (that’s 57% of U.S. mortgages) nearly quadrupled in the first nine months of 2009 compared with the same period in 2008. At the nation’s largest mortgage servicers, short sales soared 165% to 74,513 in the first nine months of 2009 from the year-earlier period.

Resistance is softening. Banks and investors are increasingly willing to agree to a short sale as a less costly option to foreclosure.

 

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Do’s and Don’ts of Buying HUD Foreclosure Homes

Whether you’re buying a home for your family to live in or you’re an investor, buying a foreclosure can be an incredible opportunity. As you get ready to start the process, there are some important Do’s and Don’t’s to help you succeed:

Do have a strategy


Knowing why you’re buying and what you intend to do with the property can be the key to making the right purchasing decision – both in terms of the house itself and the neighborhood where you’re shopping. Having an “exit strategy” means knowing before you make your purchase if you’re going to be living in it, flipping it for a profit or renting it out. This will govern a number of choices you make during the buying process, including financing, choosing a specific type of house, deciding what to upgrade in the home, etc.

Do know the market


The market changes everyday, and your local market changes even faster. It is affected by the number of foreclosures in the area, by the number of investors bidding for those properties, by the amount of bad debt weighing down the lender and many other factors. There are also more favorable days to submit an offer.
One of the best ways to know your market is to take advantage of a resource available to you for FREE: The Preferred Partner. The Preferred Partner is a Buyer Agent we have selected for each particular property based on that Buyer Agent’s knowledge of that neighborhood and that type of home. Choose a Preferred Partner and call them today.

Do use all available resources

Study all the information available for your chosen listing. Learn about the past year’s tax assessment, comparable sales, sales history and any other data available. Use the 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.

Do plan for the unknown

This is especially true when buying at an Auction. Buying a foreclosure at an auction sale can be a fast-paced process that seldom allows for a buyer to inspect a property prior to bidding. You should prepare an estimate of how much you will have to budget on possible repairs and improvements. Having a best, worst, and most likely case budget plan in place can help you determine the maximum you are prepared to bid on a property, and will also determine what your limits will be prepared to accept before taking on the project.

Don’t bite off more than you can chew

Take each step of the purchase and do the best you can do at that step. Write down the steps and check them off. Each step will be a learning experience and make you more confident in buying foreclosures in general. Don’t get into properties or transactions that are more complex than you can comfortably handle. Don’t hesitate to ask for help! Consult with your Preferred Partner, consult with our Customer Service department, and take advantage of our tutorials. Think of every step as an opportunity to learn. Take your time and proceed responsibly. The  initial returns on your first foreclosure investment may be  modest, but the knowledge and expertise you will gain from  the process will put you on the  longer road to success and profitability.

Don’t underestimate the foreclosure process

The foreclosure is a process full of nuances. Each state has its own set of foreclosure laws. A a new investor you should familiarize yourself with the foreclosure laws of your state. Also, depending on what type of foreclosures you will choose to buy (pre-foreclosures, foreclosures at auctions, government foreclosures, bank foreclosures, or an FSBO) you should try and get acquainted with the possible problems that can come up. Knowledge is power. By arming yourself accordingly, you’ll feel more confident in your ability to deal with whatever may arise.

 

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Applying For HUD Mortgage Financing

There are millions of Americans that qualify for an HUD / FHA Home Loan. However, many people are not aware that they may qualify. Each state has specific requirements and a HUD / FHA home financing experts have access to a wide range of mortgage programs to insure you get the best financing to meet your needs.

 

The FHA loan program was created to increase homeownership. The FHA program makes buying a HUD home easier and less expensive than other types of realestate mortgage home loan programs. Some highlights of the FHA loan program are:

 

 Minimal Down Payment and Closing Costs:

  • 100% Financing on HUD Homes
  • Gifts for downpayment and closing costs allowed.
  • No reserves are required.
  • FHA regulated closign costs.
  • Seller can credit up to 6% of sales price towards buyer costs.

Easier Credit Qualifying Guidelines such as:

  • Minimum FICO credit score of 620
  • FHA will allow a home purchase 2 years after Bankruptcy
  • FHA will allow a home purchase 3 years after Foreclosure.

Easier Debt Ratio & Job Requirement Guidelines such as:

  • Higher Debt Ratio’s than other home loan programs.
  • Less than two years on the job is allowed
  • Self-Employed individuals o.k.

Our organization will match you with one of the many FHA lenders we use to fit your home loan needs. This match is based upon your income and credit history. The FHA loan program is one of the best options for most first time home buyers as well as move up buyers.

 

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What To Look For When Getting A Home Inspection

Once you’ve searched through for a HUD home, and found a listing that meets your criteria, once you’ve secured your financing and are contemplating making an offer, it is time to hire a good home inspector and conduct a thorough home inspection.

A good home inspection typically will include the heating and air conditioning systems, the roof, the attic, insulation, plumbing and electrical systems, the integrity of the walls and ceilings, floors, windows, foundations and basements. Depending on each house, appliances and outdoor plumbing may also be included.

Ask that the home inspector take pictures of anything they find.

Ideally you should be present during the home inspection, walk alongside the home inspector and have him/her describe to you in detail what he/she is finding. You might also choose to conduct the inspection with a contractor, either in lieu of the home inspector or after the home inspector does his/her part. A contractor will likely notice things the home inspector may not notice, as well as present estimates of the repair costs.

Once the inspection is completed you should have a written report of all the findings, as well as photographs, all neatly assembled in a binder.

Now, the first step you’ll have to take once you have the home inspection report will be to decide if you still want to move ahead with the home purchase. This is especially true of REO’s, and even more so if the property has a very low price that is significantly affected by the cost of repairs. Let’s suppose you found a property on sale for just under $20,000. It’s an old home and requires quite a rehab. Once you look at the home inspection report you find that there’s an estimated $10,000 worth of repairs. Well, that’s half-again your investment! Are you still confident that your margins will justify purchasing this home? If the home can be repaired and sold in 90 days for $75,000, then clearly it’s worth the investment. But proceed carefully and make sure that your figures are correct.

Assuming the cost of repairs doesn’t constitute a deal-breaker and you’re moving forward, this is a good time to work with a Buyer Agent to draft up the offer.

In rare cases you may want to submit an offer prior to the home inspection, but if you ever do, you’ll want to write in a contingency clause stating that if the inspector finds $10,000 worth of problems and the seller won’t fix them you can call the thing off.

A good place to look for Home Inspectors is the American Society of Home Inspectors (http://www.ashi.com/).

You should interview several home inspectors prior to choosing one.

Some questions you may want to ask:

·        How long have you been a home inspector?

·        How many homes have you inspected?

·        Can you tell me what the home inspection will cover?

·        Do you specialize in residential or commercial properties?

·        Does the home inspector’s company offer to provide repairs or improvements based on the inspection? (in the case of a contractor the answer woudl be yes – but in the case of a home inspector the answer should invariably be no, as this would be against the Code of Ethics of the ASHI due to conflict of interest.)

·        How long will the inspection take? (It should take a minimum of a couple of hours for the typical one-story single-family home.)

·        How much will the inspection cost? (While costs vary, a range of $250 to $600 is normal.)

·        Ask to see samples of a written report. Ask if the inspector agrees to provide photos (you should have a camera at the ready in case the home inspector does not have one.)

·        Would the home inspector be ok with you partipating in the inspection? (Not only will you learn important details about this particular home, but also about homes and home inspections in general. This is valuable education, especially if you plan on purchasing several properties over time. At any case, a home inspector’s refusal should be interpreted as a bad sign.)

Make sure to get references for the home inspector you are considering. When calling those references, one questions you can ask is whether they found any important flaws in the home after close of escrow that the home inspection had missed.

Be leery of recommendations from realtors. A realtor might be biased toward home inspectors who are easily swayed and who don’t kill deals by exposing negative information about a property. You want a home inspector who is hard-nosed and impartial, and one who will readily inform you of anything that may be wrong with the home.

Remember, even in the case of a large list of repairs, the home inspection results don’t have to mean that the deal is off. It just means you are now in a strong position to go negotiate a lower selling price that will take into account the repairs needed.

 

 

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