Hud Homes - CaliforniaWe recently explored one of the most overlooked, yet crucial, parts of getting one’s offer accepted: Visit the property in person. But when time is short and our market is this competitive, what is the best way to prioritize where to focus your efforts as a buyer?

Easy: Start with a HUD home.

What exactly is a HUD home? According to HUD itself, these involve “a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage.” These properties are then assigned to agents like me, who list and market them to buyers.

While there are no doubt deals to be had with HUD homes, it’s a slightly common misconception that HUD homes often go for well below market value. For the most part, HUD is a seller like any other: They target market value and field numerous offers with a bid process.

In other ways, though, HUD is unique in the ways their listings can benefit buyers. I can think of at least 9 reasons for buyers (and their agents) to zero in on HUD properties, from saving money on escrow fees to owner-occupant advantages and more:

1. HUD will pay up to 3% of buyers’ closing costs
This must be negotiated in contract, but it’s a useful – and valuable — option worth exploring. Keep in mind that this will affect your net offer to HUD, which is how they determine which offer they accept. But in the right situation, and with the right property, this can potentially save the buyer thousands of dollars in out-of-pocket expenses.

2. Escrow fee paid by HUD
With HUD picking up the escrow fee, buyers can generally save anywhere between $350-$900 they might be responsible for in a conventional transaction.

3. FHA appraisal is already completed
This is especially helpful to FHA buyers, who will not need to pay for a new appraisal. This saves an average of around $400. (Appraisal is good for up to 4 months.) Furthermore…

4. Price of home is based on an FHA as-is appraisal
This is where the excellent values come in: If HUD has lowered the price from the initial list price, buyers can potentially pick up homes at thousands less than their FHA appraised value. Instant equity!

5. Sealed bidding process, quick response
In the initial 5 to 10 days of a property’s availability, bids for HUD homes are sealed and held during a “free look period.” (See below for how the length of these periods are determined.) Following these periods, sealed bids are reviewed daily and bidders receive responses to their offers within 24 hours.

6. Owner-Occupant priority bidding period
The initial HUD listing process is optimized for potential owner-occupants. The bidding periods break down as follows:

· For properties listed “IN” (Insured, which means the property would be FHA 203 B financeable with no Minimum Property Requirements, or MPRs) and “IE” (Insured with Escrow Repairs, which means the property is FHA 203 B financeable with MPRs of up to $5,000), there is a 30 day Owner Occupancy Exclusivity Bidding Period. This means that only Owner Occupants may bid on these properties. The first 10 days are what is known as the “free look period.” On the 11th day, the bids are reviewed for acceptance. If there is a winning bidder, the property moves to escrow, if not, the property continues to be listed and has a daily bidding deadline at that point. If the property has not sold within the first 30 days of listing, then the property will be open to all bidders, including investors.

· For properties listed as UI (Uninsured) or UK (Uninsured eligible for FHA 203K), there is a 5 day Owner Occupancy Exclusivity Bidding Period. Again, this means that only owner-occupants may bid on these properties. On day 6, if the sellers don’t have an acceptable owner-occupant bid, then they open it up to everyone – including investors – and review bids daily.

7. If condo or townhome, minimum owner-occupant percentage is waived
Traditionally, the FHA requires condo and townhome projects to be inhabited by at least 51 percent owner-occupants. But with HUD homes, this minimum percentage is waived. (See Mortgagee Letter 2012-18 for more details, only on HUD Homes)

8. “IE” finance types have option FHA standard loan with escrow repair
As noted above, “IE” means “Insured with Escrow Repairs,” which means the property is FHA 203 B financeable with MPRs of up to $5,000. The buyer finances the cost of the MPRs into their loan. The lender holds this amount back and the buyer has the repairs completed after the close of escrow by a licensed, bonded and insured contractor approved by their lender.

9. Good Neighbor Next Door (GNND) program
Here’s another amazing option for law enforcement officers, teachers, firefighters, EMTs: If eligible buyers commit to live in an eligible HUD property for 36 months as their sole residence, then HUD, according to its website, may offer “a substantial incentive in the form of a discount of 50% from the list price of the home.” See the GNND program site for more details.

Get started with HUD homes by checking out my listings today, and contact me for more details about HUD homes in Sacramento and the surrounding area!

Filed under: Ask Warren