What Is HUD Homes?
The Federal Housing Administration (FHA) often have homes that go into foreclosure. HUD Housing works when HUD takes over the foreclosed property. HUD then repays creditor for their losses in the property’s foreclosure. HUD will use a housing management company to list the property on the market for sale. The management company responsibilities are to confirm that all inspections and appraisals are completed. They also pay any past due bills, like property taxes or utility bills. The management company will pay these bills before the property is listed on the market.
One of the benefits of purchasing a HUD home is the Good Neighbor Next Door program. The program allows individuals to buy HUD homes with a low down payment of $100 and half the listing price cost of the residence. Public Service officials, such as law officers, teachers, medical technicians, and firefighters can qualify for HUD Housing. However, applicants must agree to reside in the home for no less than three years.
How Do You Locate HUD Homes?
Locating a HUD home doesn’t need to be difficult. Searching online or contacting a real estate broker is a great place to start. Potential buyers can find properties in their area by searching online. Click here for the HUD Homes Official Database. You can also contact a local registered HUD real estate broker.
To inspect a property before placing a bid, the buyer will need a broker or agent to be with them. Brokers and Agents are required to be there in person at the properties during appraisals and inspections.
HUD Homes Financing
Buyers are not able to assume a mortgage with the purchase of a HUD home. They must first arrange funding or pay cash. The homes considered insurable can be funded with an FHA loan. The homes that need repairs can be purchased with an FHA rehab 203(k) mortgage. If a home is uninsurable, it could mean it needs extensive repairs and requires a conventional loan or cash.
Note: Keep in mind the time it takes to close on these properties when locking in a mortgage rate. A buyer can anticipate the escrow to take anywhere from 45 to 60 days to fully close.
What To Know Before You Bid On A HUD Home
HUD homes are sold “as-is” there are no repairs done to the property before they close. MCB (HUD’s management company) is strict at enforcing the “as is” code. They will also make sure the buyers know what this code means.
HUD will not secure the current state of any home. It does not matter if the property is insurable or meets zone requirements. Buyers are informed that it is likely that these homes may have violations. The buyers are well advised that it is their responsibility to recognize any potential violations
Even if the prior mortgage of the home was an FHA loan, that doesn’t mean the home will still be eligible for FHA financing. If a bidder plans to use another FHA loan, then they shouldn’t bid on these types of houses.
During the bidding process, many properties will only be available during the “priority period.” The priority period is made for buyers who will use the property as their primary residence. If no bids come in during the priority period, the bidding will be opened to all. The date it opens will be noted on the property information.
To be able to submit a bid, the future buyer must have a pre qualification letter from a lender or a mortgage approval letter. If the buyer plans to use cash, then he or she must prove they have funds in their account with a bank statement.
Remember: It takes time to close a deal. HUD housing is not for people who need to be in a home within 2 months of closing.
Bidding On HUD Home
The potential buyer’s broker will need to place a bid for their client. HUD will pay as much as 3% of the closing costs, including the mortgage origination fee of 1 % and the commission of real estate broker. However, these costs will come off after the management company assess the bids. The winning submissions will need to provide the largest financial net gains to the HUD and still meet the minimum threshold. Provisional acceptance is given to the winning bidders if the bidder has all the required documents.
How Does Escrow Work With HUD Homes?
If a bid is accepted, the buyer has 48 hours to submit an original Sales Contract Package or the purchase is forfeited. Money must be transmitted within 72 hours of acquiring instructions from the management company. It is then the winning bidder’s job to specify the name on the loan and the type of financing they will be using. If changes need to be made, it must be followed with addenda, or the transaction is terminated.
Buyers can request copies from the management company of any appraisals and inspections done. If there happens to be a homeowner’s association, its transfer fees and bills will need to be accepted by the management company. This can add on weeks to the escrow process. It’s the job of the buyer’s real estate agent to submit 15-day extensions to keep the process going. Failure to provide the extensions can cause the buyer to lose Earnest Money terminate the contract.
What Are The Benefits Of A HUD Home Purchase?
Substantial discounts, HUD will pay a large portion of the closing costs. Although deals vary by location, it’s easy to find a great deal with the purchase of these types of homes.
