What is a HUD Home?
When someone with an FHA insured mortgage can't meet the payments, the lender forecloses on the home, The U. S. Department of Housing and Urban Development (HUD) pays the lender what is owed and HUD takes ownership of the home. HUD then sells the home at market value through a local Marketing & Management Contractor. HUD homes are then listed for sale by HUD Certified Real Estate Brokers.
How can I find a HUD home?
HUD homes are listed on our website, in the local MLS, and www.hudhomestore.com.
Who can buy a HUD home?
Anyone who can qualify for a mortgage or who can pay cash may buy a HUD home. Owner occupants must live in the house as their primary residence for at least one year and may not purchase another HUD home as an Owner Occupant for two years. Buyers must use a broker or agent who is registered with HUD to place a bid on a property.
How can I buy a HUD home?
Start by contacting Guy Foxwell. Acting as your real estate agent, he must submit your bid for you. Normally, HUD Homes are sold in an "Offer Period." At the end of the Offer Period, all offers are opened and considered to be received simultaneously, and, basically, the highest acceptable net bid is accepted. If the home isn't sold in the initial Offer Period, you can submit a bid until the home is sold. Bids can be submitted any day of the week, including weekends and holidays. They will be opened the next business day. The results from the review of all accepted bids are posted on our website. It is the responsibility of the real estate agent to check HUD's website for accepted bid information and ensure that all the required forms are properly filled out and sent to HUD within two business days of acceptance.
What is Owner Occupant Period?
When a HUD property is first listed for sale to the general public, it is available to Owner Occupant Purchasers "only" during the initial priority period as specified below. All bids placed by Owner Occupants that are submitted during this priority period are considered to have been received as though they were received simultaneously. If there are no acceptable owner-occupant bids on the last day of the priority period, then bidding becomes available to all purchasers on a daily basis, with no priority given to owner/occupant bids.
During the first 30 days a HUD property is listed to the general public, it is available to Owner Occupant Purchasers only. All bids placed by owner occupants that are submitted from Day 1 through Day 9 are opened on the 10th day and are considered as though they were received simultaneously. If there are no acceptable owner-occupant bids on the 10th day, then bidding continues on a daily basis with bids reviewed daily until Day 30.
When can an Investor submit a Bid?
A HUD property is available to Owner Occupant Purchasers "only" during the initial priority period as specified above. All bids placed by Owner Occupants that are submitted during this priority period are considered to have been received as though they were received simultaneously. If there are no acceptable owner-occupant bids on the last day of the priority period, Day 31, then bidding becomes available to all purchasers on a daily basis, with no priority given to owner/occupant bids.
How do I get access to show the property?
Contact Guy Foxwell by clicking any of the "Contact Guy" links on this web site. Or, a list of local listing brokers can be found at www.hudhomestore.com.
What is FHA financing?
There are three main types of FHA Financing. More information may be obtained from any mortgage company familiar with FHA Guidelines for the various programs.
- 203(b) Regular FHA Loan - Listed as "IN"
- If the Property does not have any mandatory repairs FHA will insure the Loan hence the classification of "IN"
- 203(b) - Repair Escrow - Listed as "IE"
- When a property has less than $5000 in repairs to bring it up to Minimum Property Standards, FHA will insure the loan provided the repairs are completed by the Buyer or the Buyer's agent within 90 days from the date of Closing.
- It is a cost to the Buyer that the Buyer can finance and add the amount to the mortgage.
- The Lender monitors and keeps the funds in an escrow account for disbursement on completion of repairs to the Lender's satisfaction.
- 203(k) - Rehab Loan - Listed as "203K"
- When the property has more than $5000 in Minimum Property Standards repairs to be done.
- The Lender must obtain an Inspection report from an approved 203(k) consultant and a new appraisal
How is the repair escrow amount determined?
The FHA appraiser lists the estimated cost of repairs needed to bring the property up to minimum FHA standards. This amount is then multiplied by 110% and this amount is listed as the repair escrow amount. Example: if repairs total 1,000.00 x 110% = 1,100.00. The Repair Escrow amount will be listed at $1,100.00.
How do I determine the mortgage amount when there is a repair escrow?
The DE Underwriter will determine the final 203(b) mortgage amount. The DE Underwriter will take into account the repair escrow amount to determine the FHA loan amount. The DE underwriter will determine this amount. Regardless of whether or not a repair escrow will be used in the purchase of a home, the lines on the Sales Contract that request the down payment amount and the secured mortgage amount should be filled in "TBD" (To Be Determined). The line associated with the length of the loan should also be filled in TBD. Please remember that the repair escrow amount needs to be filled in only if the buyer is using 203(b) repair escrow financing.
Will HUD pay for any closing costs and selling agent's commission?
HUD allows up to 3% Real Estate Commission to the Selling Broker. Although HUD may pay for these costs, keep in mind that the higher the closing cost and commission will reduce your Net to HUD and may affect your competitive bidding ratio. For more information, ask your real estate agent or the listing broker.
HUD will allow to be deducted from its proceeds, purchaser financing and closing costs that are considered to be reasonable and customary in the jurisdiction where the property is located. In no event may these costs exceed 3% of the property's gross purchase price. Please reference HUD Notice H2006-12 for additional information. Please refer to page 2 of your state/regional Forfeiture and Extension Policy for a list of the closing costs that will automatically be paid by HUD and other closing costs that may be paid by HUD.
Is there anything else I should know about HUD Homes?
More information is available on HUD's website:
Houses built before 1978 may have lead-based paint which can cause harm to your family; so be sure to read about this hazard and about what you would need to do to correct it.
What if my offer price is higher than the appraised value?
© Copyright 2010 by Richard Merk. All rights reserved.