The Federal Housing Administration (FHA) provides insurance against default on
home mortgage loans. When covered by this insurance, a lender may provide a loan
that supplies more than he standard 80% of the purchase price of a home. When
defaults occur, the FHA often ends up with the home following the foreclosure
sale. Because the FHA provides insurance on low down payment loans, defaults are
more common than on conventional loans. This means HUD usually has one of the
larger inventories of repossessed homes.
Sometime known as "HUD homes", these properties are offered for sale to
public (FHA is a division of the department of Housing and Urban Development, or
HUD). You may obtain a list of available homes from your local HUD sales office
or go through a real estate broker. The agency does not in general use exclusive
listings with brokers but will accept bids through brokers who are on an approved
list. Check official web sites for details:
www.hud.gov
If you want to see homes available in your area, go to
http://www.hud.gov/homesale.html
Occasionally, HUD will pace advertisement in the classified section of local
newspapers. (Don't be confused with the reference to HUD rather than the FHA,
whereas the FHA handles tje insurance program, HUD is the parent agency
that markets and sells the properties.)
Most homes will be offered with an asking price stated. Since there is a limit
on the amount of loan that can be covered by FHA insurance, the home held by HUD
will be somewhat modest relative o the market. Homes may include condo and even
some multi-family buildings. The agency generally does not repair or remodel the
properties, except in cases of dangerous situations. If a home is in good enough
condition to satisfy FHA standards, a purchase loan on the property may be
eligible for insurance coverage. Some homes may include a bonus for fix-up
expense. The FHA does not make loans directly and, therefore, does not finance
the properties it sells.
Once you have inspected the property and decide on an offering price, you may
submit a sealed bid to HUD. general procedure calls for holding all bids for the
full offer period. when the bids are opened, the highest net offer is accepted.
Bidders who will occupy the home are given priority, after which bids from
investors are considered.
A bid should state the offering price and any special costs to be incurred by
HUD. The agency will pay some of the buyer's closing costs and any brokerage
commission on the sale. However, these costs are deducted from the bid price for
the purpose of determine the highest net bid to HUD.
The bidding process is straightforward. On the other hand, properties must be
examined carefully, for they may be in poor condition. Don't expect a luxury
home in the inventory, but you may find some good income property. Finally. HUD
provides no financing but the FHA may provide insurance on a loan you arrange
with lending institution or mortgage banker.
