Distressed properties or sales usually mean foreclosure or short sale homes. They are often available at discount. If that sounds good to you, take a look at HUD homes, foreclosed houses now owned by the U.S. government.
HUD's inventory of homes inÂ mid-April included 16,200 single-family homes. Of this number, 53 percent were under contract, meaning more than 7,500 are still available. And as borrowers default, new homes enter the program all the time.Click to see today's rates (Sep 19th, 2017)
HUD homes are a by-product of the FHA loan program. Everybody knows about FHA mortgages, but many people don't realize that the FHA is not actually a lender. Instead, it's an insurance program.
Borrowers purchase real estate with lender financing, and the loans are insured by the FHA. With FHA coverage, a borrower can buy with as little as 3.5 down instead of the 20 percent lenders really want.
In the usual case, the FHA provides mortgage insurance (MIP), the borrower pays MIP and the mortgage, and everyone is happy. However, in some cases, borrowers run into financial problems. The property must be foreclosed and sold at auction.
If the property doesn't sell, FHA insurance pays off lender claims and HUD takes title, thus creating a â€śHUD home.â€ť In effect, HUD homes are the government equivalent of REO (real estate owned) properties owned by lenders in the private sector.
It's easy enough to find HUD homes. Just go to HUDHomeStore.com, a government site. Just pick your state and city, county or ZIP code. All available HUD homes appear.
You need a licensed real estate broker listed with HUD to bid on FHA properties. At HUD's HomeStore site, there's a tab which allows you to find brokers by state and ZIP code.
In the same way you should shop for mortgages, it's also wise to speak with different agents before selecting one. Be sure to ask who the broker represents and how commissions are handled.
HUD wants to unload these properties as quickly as possible to avoid the costs of maintenance and the possibility of vandalism.
At first, HUD properties are offered exclusively to owner-occupants, nonprofits and government agencies. Once the "priority period" runs out, the property is available to all bidders, including investors.
The length of the priority period varies: It's 15 days for HUD REO properties marketed as â€śInsuredâ€ť or â€śInsured with Escrowâ€ť (meaning financed with an FHA-insured mortgage), but only five days for uninsured homes.
You may be able to pick up HUD homes at a significant discount, because these properties have already been offered for sale â€“ that foreclosure auction â€“ and no one bought them.
The result is that REO properties â€“ whether through HUD or the private sector â€“ often sell at low prices. In fact, in the case of HUD homes, there are cases in which 50 percent discounts are built-in.
The bidding process is not first-come, first-serve. All priority-period bids received from days one through ten will be opened at once after ten days have passed.
With uninsured properties, the bids will be opened after the close of the five-day bid period. If the bids are not acceptable, or no bids were offered, the property will then be made available to all bidders.
Importantly, you need to inspect properties with care. As HUD explains, â€śall purchasers are strongly encouraged to perform a walk through inspection at or near the date of your contract acceptance and, again, immediately PRIOR to closing.â€ť (Their caps!)
â€śHUD properties,â€ť says the government, â€śare sold as-is with no warranty.â€ť
Condition is an important matter. For instance, if you walk through the property and the water is not turned on, how do you spot leaks? Can you be sure appliances work if the electricity is off?
Ask your broker about condition and how you can employ a professional inspector.
A growing problem in metropolitan areas is that home values are rising faster than salaries. In particular, communities are often worried about their ability to keep needed service providers.
To address this problem, HUD created the Good Neighbor Next Door (GNND) program for qualified law enforcement officers, teachers, firefighters, and emergency medical technicians.
Under GNND, qualified individuals can purchase HUD homes with as little as $100 down.
Not less important, under GNND, participants can buy a home for half price.Â A $200,000 HUD home gets financed withÂ two loans -- a $100,000 loan for 50 percent of the HUD appraised value, and a $100,000 â€śsilent second."
After three years of continuous occupancy, the silent second goes away and the owners are free to sell the home for market value and keep any profit.
For more information, speak with brokers who handle HUD homes and be sure to ask about condition, financing, and discounts.
Today's mortgage rates are rather stable because there have been no economic releases and no major financial news. Current mortgage rates represent a bargain -- and that goes double if you can find a great deal on a HUD home.
It's important to get several mortgage quotes when you shop, so that you know you're getting a good deal.Click to see today's rates (Sep 19th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)