August 21, 2017
The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), requires federal mortgage insurance when a borrower puts less than 20 percent down. This ensures that mortgage lenders will be reimbursed in the event home buyers default on the mortgage.
A HUD home is a one to four unit residence acquired by HUD as a result of a foreclosure on an FHA-insured mortgage.
HUD’s official listing site for all HUD homes that are available for sale are located on Sage Acquisitions’ webpage at SageAcq.com or you will find them at HUDHomestore.com. This website is a free, public access website in which anyone can search all of the HUD homes that are currently for sale.
Being connected with a HUD-Registered real estate agent is the primary step to purchasing a HUD home. This agent will assist you in searching for HUD homes, show you homes, explain how to get pre-qualified with a lender, and submit offers on your behalf to HUD. Buyers cannot purchase a HUD home without the assistance of a HUD-registered agent.
You can find a HUD-registered agent from the listing site on HUDHomestore.com, or you can simply ask any agent you may be working with or know, if her or she is HUD registered and familiar with selling HUD homes.
Navigating through HUDHomestore.com is extremely easy and informative, providing you with HUD programs and resources. Property searches can be accessed from the home page where you can search by state, zip code or buyer type. The HUD news room provides information on HUD lenders and press releases regarding new programs and housing developments. Frequently asked questions and HUD handbooks are also available on the resources page.
There are a few things to keep in mind when considering purchasing a HUD home. HUD homes are sold in “AS IS” condition which means there are no warranties, guarantees, or representations about the property, FHA Insurable or otherwise. No repairs to HUD homes will be considered. HUD only makes sure the property is safe, secure and marketable.
HUD homes often get a bad name for being run down and not updated but in most cases that is not true. Many HUD homes just need some cosmetics such as new flooring, fresh paint and some new landscaping. These are things that you would probably do anyway when purchasing a home. Buyers are not allowed to move in or start any repairs prior to closing.
Buyers are allowed and encouraged to get an independent home inspection. If you are interested in purchasing a HUD Home that is in need of repair, you may be interested in applying for an FHA 203(k) Rehabilitation Loan. Generally, when a buyer wants to purchase a home in need of repair or modernization, they usually have to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. FHA’s 203(k) Rehabilitation Loan are designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property.
Properties listed for sale appear daily on the HUD Home Store website with certain listing periods. Understanding the different listing periods is another crucial part of bidding on a HUD home.
Lottery Properties – These properties are listed before the listing is available to the general market. Typically the time line is 7 days and Government Agencies, Non-Profits and GNND (Good Neighbor Next Door) buyers are eligible to submit a bid.
General Market Listings (Sealed or Exclusive Bidding) – When a property is marked Sealed Bidding or Exclusive Bidding, it means that bids will accumulate over the entire length of the bidding period and will be reviewed the day after the close of the period.
Insured/Insured with Repair Escrow
Daily Bidding or Extended Bidding – This represents an individual 24 hour bidding period.
When you decide to put an offer in on a HUD property there are many forms that need to be filled out by you, the buyer, and your real estate professional. The HUD Sales Contract is a 27-page document that includes:
Within two business days of being notified that their buyer is the winning bidder, the buyer’s agent must submit the completed HUD Sales Contract to HUD and the listing agent delivers the earnest money to the Closing Agent. It is important to know that the clock is ticking. All documents must be sent to Sage Acquisitions within 2 days of the notification error free. To ensure a smooth transaction avoid these common errors:
The earnest money deposit must be in the form of a cashier’s check, certified check, or money order with no termination date or cancellation provision, payable to the Closing Agent or to another Entity as designated by HUD. This deposit demonstrates that the buyers are serious about wanting to complete the purchase.
The earnest money deposit amount is as follows:
When the seller accepts the offer, the earnest money is held in escrow by the settlement or Title Company until closing and is then applied to the buyer’s portion of the remaining costs. If the offer is rejected, the earnest money is usually returned, since no binding contract has been entered into. If the buyer retracts the offer or does not fulfill its obligations under the contract, the earnest money is forfeited.
When you submit a bid on a HUD property and are completing the sales contract, you will have to tell Sage Acquisitions, HUD’s Asset Management Company, who your Buyer Select Closing Agent will be. This agent is in addition to your Realtor® and must be an attorney, Title Company or escrow company and follow applicable federal, state and local laws for your state. Buyer Select Closing Agents must be registered with Sage Acquisitions and complete the necessary trainings provided in order to receive access to the system’s portal. The Buyer Select Closing Agent will support you through the closing process, explain the scheduling, document preparation and get your new deed for the property.
Once your bid is accepted by HUD your Buyer Select Closing Agent will receive a complete contract package that includes a signed sales contract with any addendums and amendments and information regarding the earnest money. The closing agent will request all HOA fees, taxes, utilities and any other demands, which are forwarded to Sage with supporting documentation no later than 10 days prior to closing. Buyer Select Closing Agents process and handle any and all loan documents the lender requires for a closing. Closings are to be scheduled 5 business days prior to the requested closing date.
The process of buying a HUD home can be very rewarding. If you work with a HUD registered real estate agent, follow the guidelines and stay within the allocated timeframes, you can be a homeowner in no time. For additional information about purchasing, a HUD Home, the HUD process, check out HUD.gov. To see available HUD properties, check out HUDhomestore.com.
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