Purchasing HUD Owned Foreclosure - Home Buyers and Investors
Overview
“there will be plenty of HUD homes for sale over the next few years.” – Ilyce Glink
A HUD home, or HUD foreclosure, is a 1-4 unit residential property acquired by U.S. Department of Housing and Urban Development (HUD) as a result of foreclosure on an FHA-insured mortgage. The Federal Housing Administration (FHA) is the part of HUD that provides federal mortgage insurance. If a foreclosed home was bought with a FHA-insured loan, the lender can claim the balance due to the mortgage. FHA settles the lender’s claim then hands over the property to HUD, which then sells the home.
HUD home advertising
HUD homes are normally advertised through weekly newspaper adverts in the real estate classified pages. Another major source of listings is the local Multiple Listing Services (MLS). Any realtor who has subscribed to an MLS can access available listings and HUD home foreclosures in their area. HUD also list their homes at www.gud.gov, and HUD home foreclosures can also be accessed at Home Fish. HUD home foreclosure listings on the internet are maintained by a number of management companies all contracted by HUD. However, buying a home is only possible via an offer presented by a HUD-approved real estate broker.
Procedure of buying
“If you are a first time buyer, it is advisable that you work with somebody who has dealt with purchasing HUD homes in the past” – FHA info
The process of purchasing a HUD foreclosure differs significantly with that of buying a traditional home. HUD homes are sold through a process of bidding that places the investors in line behind the intended owner-occupants. In the course of the first 10 days that a HUD home is scheduled for sale, only owner-occupants are allowed to place bids. If there is no successful bid by the time this period elapses, bidding is now opened to investors.
Financing
Even though HUD is not a lending organization, buyers of HUD homes may be eligible for FHA-insured mortgages. However, the buyer is not required to use FHA-insured mortgages. The buyer could go for conventional financing with an adjustable-rate-mortgage or a fixed rate. Alternatively, the buyer could apply for an FHA-insured loan, enabling the buyer to use a low down payment. The U.S. Department of Veteran Affairs offers VA loans, which guarantee the lender against loss as a result of the borrower’s default. Finally, the buyer may qualify to take over the existing loan on the HUD home, which means paying the same mortgage payments the former owner was making prior to the foreclosure.
Bidding
Bids for HUD homes must be channeled through a HUD-approved agent or broker and are usually submitted electronically. At the time of electronic bidding, the potential buyers must avail an earnest money deposit. Deposits for winning bids are then quickly surrendered to the HUD closing agent. Once the bid is won, the purchaser is required to close within the time period specified the closing agent. The correct sales contract must be issued quickly – within the first 48 hours for most states. A stringent settlement deadline is set, normally 30 to 60 days after the date of the accepted contract. Investing in HUD foreclosures has the benefits of affordability and potentially good returns. But investors, however, should do their research well and exercise patience when going through the process that often favors owner-occupant buyers.
Article by Charles Mburugu
