How To Buy A Foreclosed Home From HUD
Basics Of Bidding On A HUD Home.
Great deals on real estate can be found through to non-conventional ways of purchasing a home, such as buying a home that is listed as a short-sale, a bank-owned home (also referred to as REO), buying from an auction, and a HUD home.
WHAT IS A HUD HOME?
The U.S. Department of Housing and Urban Development (HUD) ends up acquiring homes as a result of foreclosure on FHA-insured mortgages. The Federal Housing Administration (FHA) is a part of HUD, and FHA loans are home loans that are federally backed the FHA. The way FHA loans work is that when a bank gives you a loan, the government insures your mortgage so that if you were no longer able to make your mortgage payments and default on the loan, then HUD would pay the bank the remaining balance on the loan so that the bank doesn’t lose any money, and HUD would then take possession of the foreclosed home.
HUD will sell these homes to the public, with the goal of trying to recoup or minimize their monetary losses from the foreclosure. They're not out to make turn a profit, per se, which means these homes will present great opportunities to buy a home at a great discount.
HUD homes are sold “as-is.” HUD does not guarantee the condition of any property nor whether it meets local codes. HUD will not make any repairs. You can view and conduct an inspection of HUD homes, including turning on the utilities, before and/or after you bid on them.
ADVANTAGE FOR OWNER OCCUPANTS
Owner occupants (people looking to live in the home as opposed to flip or use as rental) have a big advantage in that you’ll get a chance to bid on the property before any investigator can. For a set period of time after HUD homes come on the market, they will be available only to buyers who will use the home as their primary residence. This period is known as the “Exclusive listing period”.
TO FIND HUD HOMES, go to www.hudhomestore.gov. You’ll see information about the home, including photos. Click on the amenities tab to find more information about the home or the community, the addendums tab contains documents that can be downloaded as adobe file. The agent info tab shows who the listing broker is, who the asset manager is, and who the field service manager is.
HUD is not in the business of managing real estate or selling houses, so HUD hires contractors for these functions: Asset Manager, and Field Service Manager. ASSET MANAGERS are the contractors responsible for marketing and selling HUD-owned properties. They, in turn, hire local real estate agents to list the homes for sale MLS. They also review and either accept or not accept the bids. FIELD SERVICE MANAGERS are companies that provide property preservation and protection services, such as inspecting the property, securing the property, performing cosmetic enhancements, and providing property maintenance.
FIND AN EXPERIENCE REAL ESTATE BROKER
Once you find a HUD home that you are interested in, the first thing that you need to do is to work with a real estate broker because only brokers can submit a bid, which is done online. You can’t submit a bid yourself.
Find a broker who is experienced in bidding on HUD homes and can guide you through the process because they know how to navigate the bidding process to maximize the chances of getting your bid accepted and what it takes to submit a winning bid. Not all brokers will be experienced and skilled at HUD foreclosure home buying process even though they know what HUD homes are. You broker should be knowledgeable on what minimum bid threshold the asset manager is likely to use, and recommend the bid amount you should consider. In general, this amount should be between 85-89% of the home’s listing price.
BIDDING PROCESS
“Exclusive Listing Period” lasts for 15 days and then the property goes into the “Extended Listing Period,” during which time anyone from the general public can bid on it. On the HUD website, you can see under the "listing period" column, which homes are in the exclusive listing period and which are in the extended listing period. You can go to “buyer type” box and select “investor,” then your hit list will pull up only the properties that are the extended listing period.
WHAT IS “UNINSURED” HUD PROPERTY?
When the property is listed as “uninsured,” the Exclusive Listing Period is only 5 days. "Insured" or "insured with escrow" properties are properties for which you can get standard FHA loan to purchase them. If the property is listed as “uninsured,” then you can’t get a standard FHA loan to buy it, so you would need to get a conventional loan or buy with cash or get an FHA 203(k) mortgage but to get an FHA 203(k) mortgage the required repairs need to be completed within 90-days of the closing. HUD lists the property as "UNINSURED” when the property requires extensive repairs that exceed $5000. You can find out whether the property is listed as insured or uninsured on the property information page on the HUD website.