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What is a HUD home?
HUD homes are properties with an FHA insured mortgage that has become delinquent. The lender obtains the property, submits an FHA insurance claim, and then conveys ownership to the U.S. Department of Housing and Urban Development (HUD). An Asset Manager(AM) through HUD then sells the home. HUD Homes consist of a variety of properties including single family residences (SFR), townhouses, condominiums, mobile homes, and multiple family attached homes of up to 4 units.
Who can buy a HUD Home?
Individuals, companies, HUD-approved non-profit organizations, and government entities that can secure financing or pay cash for the property are all eligible to purchase a HUD Home. If interested, buyers must submit bids through a HUD-registered real estate agent.
There are two main types of HUD Home buyers: Owner Occupants and Investors.
Owner occupant buyers must live in the property as their primary residence for at least one year and must not have purchased any additional HUD Homes as an Owner Occupant in the last 2 years.
Investor buyers purchase the HUD property as either an investment or a second home or else do not qualify as an Owner Occupant.
How can I buy a HUD Home?
If the buyer wishes to finance a HUD Home, HUD requires that the buyer is pre-approved for a mortgage sufficient for the amount of the property. After the buyer is pre-approved and their funds have been verified, they need to find a HUD-registered Real Estate Agent who can assist the buyer in finding an appropriate property and can submit a bid on the property. All bids must be submitted online through a HUD-approved registered real estate agent.
In typical real estate transactions, the buyer finds a home they wish to purchase and the real estate agent will then submit an offer to the seller who can counter the offer. The buyer and seller then negotiate until they reach a deal that is mutually agreed upon or they decide to reject the terms and move on to a different property. One difference when purchasing a HUD Home is that there is no negotiations between the buyer and the seller. HUD Homes are sold in a sealed bidding process in which all interested buyers submit their best offer online and typically, the highest netting bid after all costs are paid will win the sale and obtain ownership of the property.
Initially, HUD Homes are offered to owner occupant purchasers. After the priority period for owner occupants, any unsold properties become available for investors and all other buyers. Bids can be submitted at any time, any day of the week, and are opened for review the next business day following the bid deadline.
What is the Exclusive Listing Period for HUD Homes?
When first listed for sale, priority for HUD Homes is given to owner occupants, non-profit organizations, and government entities. The duration of the exclusive listing period varies depending on the property’s FHA insurability.
If the property is being sold as Insured (IN) or Insured with Escrow (IE), the Exclusive Listing Period is 30 days for owner-occupant buyers, non-profit organizations, and government entities. Bids that are submitted in the first 10 days are considered to be submitted simultaneously and the initial bid review on the 11th day. If there is no winning bid, the bids are reviewed on a daily basis until the 30 day period is over.
If the property is Uninsured (UI) or Uninsured 203(K) eligible (UK), the Exclusive Listing Period is 5 days. Bids submitted in this 5 day period are considered to be submitted simultaneously and not reviewed until the 6th day of the Exclusive Listing Period.
When can investors submit bids?
After the Exclusive Listing Period is up if the property is not sold, the property will enter the Extended Listing Period in which they are available to all buyers including investors. All bids are reviewed on a daily basis until an acceptable bid is submitted. All bids are opened and reviewed the business day after they were submitted.
What is the lottery period?
Some properties are eligible for Good Neighbor Next Door participants, HUD registered non-profit organizations, and government entities. If this is the case, the property is open to those buyers before it becomes available for purchase by owner occupants. These properties are typically located in HUD designated revitalization areas or areas that are uninsurable. The Lottery period is open for 7 days prior to the Exclusive Listing Period.
How can I find a HUD Home?
Can I submit more than one bid for different properties?
If an owner occupant submits multiple bids for different properties BLB Resources selects and awards the winning bid in the best interest of HUD. Investors can bid and purchase multiple properties as long as they can obtain adequate financing or pay cash.
How can I finance the purchase of a HUD Home?
The buyer of a HUD Home can pay using cash, conventional, or special financing. FHA also offers financing options specifically for HUD Homes. Many factors are taken into account when considering the property. The condition of the property as it is acknowledged in the FHA-approved appraisal and the Property Condition Report (PCR) is a strong determinant of the property’s insurability. Once the disposition of the property is established, the property is listed as the value it was appraised at and will reflect the appropriate financing acronym. It is imperative that your real estate agent has a thorough understanding of FHA financing types and corresponding acronyms.
(IN) Insurable, FHA 203 (b)
Properties listed as Insurable (IN) are eligible for FHA 203(b) financing. This disposition states that the properties do not have the obvious Minimum Property Standard (MPS) repairs. Properties with MPS repairs $250 or less are listed as IN and do not include the MPS repairs.
(IE) Insurable with Escrow, FHA 203(b) with Repair Escrow
Properties listed as Insurable with Escrow (IE) qualify for FHA 203(b) with Repair Escrow. This means that properties have MPS repairs that must be addressed after closing. The MPS repairs must not exceed $5000 except for in cases where the 10% contingency causes an increase in escrow and is the financial responsibility of the buyer. The repair escrow is NOT a credit to the buyer; the buyer must finance the repair escrow with thee lender writing the FHA loan. The lender puts the money for the repairs in an escrow account until they are completed. FHA allows up to 90 days after closing for the MPS repairs to be completed. After completion, the lender will inspect the property and disburse the funds to the appropriate parties. The repair escrow applies only to FHA 203(b) financing and does not apply to cash purchase or other financing options.
Properties that are listed as Uninsurable (UI) do not qualify for FHA 203(b) financing. These properties usually have MPS repairs that exceed $5000 or for other reasons do not meet the guideline to be eligible for FHA financing. Non-FHA financing and cash purchases can be used for purchasing a HUD Home with a UI disposition.
(UK) Uninsurable, 203(k) Eligible
Properties with a UK disposition do not qualify for FHA 203(b) financing but may qualify for FHA 203(k) financing. FHA 203(k) financing is a rehabilitation loan that is open to owner occupants only. Most lenders offer both standard FHA 203(k) and the 203(k) streamlined loan. For more information on FHA financing contact a mortgage company familiar with FHA financing programs.
Will HUD pay for any closing costs and the selling agents commission?
HUD will provide up to 3% of the purchase price in closing costs that are deemed reasonable and customary in the jurisdiction in which the property is located. Closing costs are entered on line 5 of the Sales Contract. HUD will pay the lesser amount that is requested on either line 4 or actual closing costs. Any funds that remain after the allowable closing costs have been paid will not be credited to the buyer. Review the Forfeiture and Extension Policy addendum attached to the sales contract package for a list of closing costs paid by HUD.
HUD also will pay for up to 3% of the selling agents commission which should be entered on Line 6a of the Sales Contract. Line 6b is for the Local Listing Broker’s commission which is 3% of the purchase price. Selling and Listing Brokers are eligible for a $1,250 commission on certain HUD Homes. These properties are noted as such on www.HUDHomestore.com and in the MLS listing. The submitted bid is the final determinant of the commission that the selling agent will receive and cannot be modified after the bid is accepted.
Higher closing costs and commissions reduce the net to HUD and can affect the competitive bidding ratio. The LLB commission cannot be reduced but the selling agent may choose to reduce their commission.
HUD does not pay closing costs or commissions on Good Neighbor Next Door (GNND) properties. Even though these buyers must submit bids through a real estate agent, HUD will not pay the selling agent commission. If FHA financing is used, the buyer can add closing costs and commissions to their loan. HUD also does not pay closing costs or commission on Dollar Homes or properties sold during the Lottery Period to non-profit organizations or government entities.
When can I get a home inspection done?
All HUD homes are sold “as is”. HUD will not make repairs to the property. Because of this, it is vital that the buyer does a visual inspection prior to submitting their bid. It is also recommended that the buyer has professional home inspection performed with all the utilities activated after the contract has been accepted and signed by HUD. There is a 15 day period after the contract acceptance to activate the utilities and complete the home inspection with coordination with the Field Service Manager (FSM) assigned to the property. Contact the FSM directly if you have any questions regarding the utility activation process. The contact information for the FSM is found on the “Agent Info” tab of Property Details on www.HUDHomestore.com