Buying HUD Homes

From Buyincomeproperties.com

HUD Homes
Buying HUD Homes
By
Sep 10, 2005, 17:46

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.