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Buying HUD Homes

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HUD… Huh?

There are so many acronyms in the real estate world that it can be very confusing for the average consumer. You may have heard about Fannie Mae, Freddie Mac, FHA, and others, but do you really know what they stand for? This post focuses on HUD homes, and how they relate to FHA loans.

HUD – A Beginner’s Guide

HUD is short for the U.S. Department of Housing and Urban Development.  Their mission statement is:

HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes: utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination; and transform the way HUD does business.

One of the most familiar programs that HUD offers is under the FHA (Federal Housing Administration). The FHA is best known for its government backed mortgage insurance program (FHA loans) whereby the federal government insures loans made by FHA-approved lenders.  The primary goal is to provide easier entry into home ownership by way of lower down payment programs. For more information on the history of the FHA, click HERE.

When FHA Loans Go Bad…

In case you haven’t read the news or watched TV lately, I’m here to inform you that the real estate market (and general economy) has been in the dumps lately.  Things have finally started looking up recently (at least in my housing area), but there is still quite a bit of “Shadow Inventory” out there.  For an explanation of what that is, read one of my previous posts on that topic HERE.

When a homeowner can no longer afford their mortgage payments, and the home is taken back by the lending entity, it becomes an REO property (Bank-owned).  You may have seen signs like the one below in your own neighborhood.

REO

In most instances, these properties are owned by large corporate banks such as Bank Of America, Wells Fargo, etc. However, if the homeowner had an FHA loan, the home is taken back by the federal government (HUD) because they insured the loan.  When this occurs, the home is placed back on the market as a HUD property.  With this distinction, there are some unique rules and guidelines that interested buyers must follow.

Who Can Buy A HUD Home?

HUD Screenshot

Every home that HUD sells can be found HERE.  They can also be found on the local MLS site in your area.  Because the mission statement for HUD is to provide affordable housing, nearly all HUD homes have what are called “eligibility” restrictions and have certain time frames in which a limited audience may bid on them.

  • Good Neighbor Next Door, Non-Profits, $1 Homes-Government Sales – These homes are rare, and generally in very limited and specific areas.  Homes in this category are offered to these entities FIRST on an exclusive basis.  If they don’t sell by the end of the exclusive timeframe, the bidding is opened up to other parties, such as owner-occupant purchasers.
  • Owner Occupants – Nearly all properties that HUD sells on this site are available to Owner Occupants exclusively for a specific time (usually 30 days).  Within this exclusive time frame, investors cannot make on offer to purchase.
  • Investors – If a property has not been sold to one of the above entities within 30 days, investors are permitted to bid on homes beginning on the 31st day of the listing.  Sometimes this period begins sooner, based on the condition of the home.

How To Make An Offer On A HUD Home?

While anybody can purchase a HUD home, you can’t just call up HUD and say “Hey, I wanna buy one of your homes!”.  All HUD homes require that purchasers use “authorized” HUD Brokers. This can be confusing, since HUD only lists “Principal” Brokers on their website.  A Principal broker is the managing broker, but not necessarily an active, working real estate agent.  The best way to find out is to ask your current agent if he/she is an “Authorized” HUD broker.  Even better, contact me, since I AM an “Authorized” HUD Broker!

There are VERY specific instructions that must be adhered to in order to be a successful bidder on an HUD home.  If you don’t follow the instructions TO THE LETTER, your bid can be discarded and you may lose out on a terrific home.  But, if done correctly, you can find a great home for a very reasonable price.

What are your thoughts? Have you purchased a HUD home and want to share your personal experience here? Have I piqued your interest in HUD homes?  If so, drop me a email for more information…

When REALiTY BiTES, Bite Back!

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How To Get To An Auction In 3 (Not So Easy) Steps

AuctionThis past weekend while sitting at a condo in Redmond, WA that is currently being auctioned off by a company called Auction.com, I met several people that stopped by to look at the property, and even spoke to a nice couple that intended to make a bid on the unit. One question that came up from a visitor was “How does a home get to the auction stage?” Read the rest of this entry »

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Dear Mr & Mrs. Seller: We Love Your Home But…

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Why Buyers (and Realtors) Love REOs

Let’s face it, there are a lot of homes for sale right now.  It seems you can’t drive down the street in most neighborhoods without seeing a For Sale sign.  In Woodinville, WA the city that I live, there are 229 homes for sale (208 homes, 21 condos).  Of those homes available, 12 are bank owned properties (5% of the market).  Contrast that with the number of homes currently under contract (99 homes PENDing), of which 18 are bank owned.

Why do REOs sell quicker than other homes? If you ask the general public, they would answer “Because they sell for less than market value!” My answer would be “Because they are priced appropriately for the market, based on the current conditions”.  If you read my answer carefully, you’ll notice that there are distinct differences between the two statements, but those differences can dictate whether you stay or go. Read the rest of this entry »

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