If you’re a real estate investor looking for a bargain, be sure to consider HUD foreclosures. These are residential properties, typically a condo or single family home, obtained by the U.S. Department of Housing & Urban Development due to a foreclosure on a FHA-insured mortgage. Note that HUD becomes the property owner after the foreclosure and then puts it up for sale to recoup any losses.
Over the past several years, HUD foreclosures have increased, giving investors many choices. And because of the sub-prime lending predicament, more home buyers are utilizing FHA-insured loans, which will likely result in increased HUD foreclosures in the future. This increase could lead to an excellent opportunity for investors.
HUD foreclosures attract a variety of potential buyers, but priority is often given to bidders wanting to live in the property. Of course, cash offers, large down payments and other conditions are taken into consideration. In some markets, certain groups of citizens, such as firefighters, law enforcement, teachers, government and nonprofit employees, are given priority. Some even get up to 50 percent off the sales price.
Keep in mind the condition of a HUD home can vary greatly and all foreclosures are sold on an as-is basis. In addition, HUD does not warrant the property and is not responsible for repairs. So, be sure to get it inspected. Your discounted offer should be based on anticipated repairs — even complete renovations — that will be necessary to make the home habitable and up to code.
Purchasing a HUD home is considerably different than the normal home-buying process. HUD properties are sold using a bidding procedure that puts investors at the back of the line. For the initial 10 days a HUD home foreclosure is put up for sale only bidders that intend to occupy the home are allowed to submit offers. If no offer is accepted, then bidding is expanded to include others.
Most HUD foreclosures are posted on listing websites by various management companies contracted by HUD. All offers on HUD properties must be processed by a HUD-registered agent or broker, usually online. HUD will cover some of the sales commission and closing costs — percentages vary — but a common structure would be that HUD pays five percent for broker commissions and up to three percent for customary closing costs. If the buyer’s agent is not HUD-registered, the buyer will have to pay that agent’s commission separately. Be aware that when HUD considers an offer it will subtract the commissions and closing costs from the purchase price; an agent with a lower commission will probably be viewed favorably.
As with most real estate offers, an earnest deposit must be made at the time the offer is submitted and varies depending on the offer price. If the bid is accepted the deposit is given to the HUD agent. After the bid is accepted a sales agreement must be submitted within 48 hours in most states and a settlement deadline is usually set between 30 and 60 days.
Lastly, if you haven’t purchased a HUD property before, consider finding an agent who has. You will also want to get pre-approved by a lender as this is a requirement to bid on HUD foreclosures. And if you’re a cash buyer, you’ll need proof of sufficient funds, such as a recent bank statement or letter drafted by your banker. Finding a HUD foreclosure is fairly easy: read the newspaper, visit your local courthouse and surf the various government websites.
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Tags: bank, foreclosure, HUD, investing, properties, REO