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From the Feds: Buying a Home from the U.S. Government
If you are a first time homebuyer or are in the low to moderate income range, buying a home listed through the Department of Housing and Urban Development (HUD) is an appealing option. HUD homes are actually available to anyone who can qualify for a mortgage. Although they are popular with lower income families, they are also appropriate for savvy consumers looking for a great deal. HUD also has special purchase programs for educators and law enforcement officers, which may qualify them for discounts up to 50%.
If you have fallen on hard times or have less than stellar credit, you may still be able to purchase a home with government assistance. There are several government programs available to those in need. You can go over your alternatives with a HUD funded housing counseling agency.
In order to find a HUD home, go to your state’s HUD website. You will be able to browse the available homes. When you find a home you like, you should find a HUD approved real estate office to show you the property. The agency’s website will have a list of approved offices. Contact them so that they can set you up with an agent. When you meet with an agent, the process is much like buying any home. You want to lay out your wants and needs so that the agent knows what you are looking for in a home. Pictures may not be enough to base your decision on, so you need to have an open dialogue with the agent.
The home buying process is a little different for HUD homes than it is for a regular listing. If a homeowner with a HUD insured mortgage cannot make the payments, the home is auctioned off after the lender forecloses. HUD pays the lender for what is owed on the property and takes ownership of the home. These homes are sometimes auctioned off for less than the appraised market value. This is why such great deals can be found on HUD homes. The auction is considered the “offer period”. Everyone places their bids and the highest bidder gets the house. You can submit a bid at any time if the house isn’t sold in the offer period. If HUD approves your bid, your agent will be contacted within 48 hours.
In the event that your bid wins, your agent will help you with the paperwork. Your settlement date will usually fall within 30-60 days of your winning bid. It is important to remember that you cannot finance a home through HUD. You need to have your own financing arrangements. Have everything ready to go at the time you place your bid. If your bid wins, but you do not close, you may lose your deposit.
If the home is in need of repairs, the responsibility falls on the buyer. HUD homes are sold “as is” and do not come with a warranty. HUD will not make the repairs because the price of the home is always adjusted downward to reflect the cost of repairs. Don’t consider buying a HUD home unless you are willing to absorb the cost of repairs. The repairs might be minor, so don’t turn your back on good home because it needs a little work. Before looking for homes, you should determine what your repair threshold is and stick to that. Some like the challenge of it and others would prefer to keep repairs to a minimum. It is important to have the home inspected prior to making an offer so that you can figure the cost of repairs into your bid.
If you are purchasing a HUD home for real estate investing, you should be aware that you cannot bid during the initial offering. Families in need of housing take priority; therefore, the initial offering is only available to buyers with the intent to live in the home. If no one bids on the home, investors can then place their bids.
If a foreclosure cannot be sold within 6 months, HUD will then sell them to charities or agencies for the purpose of providing housing for needy families. Either way, the homes are likely going to those individuals that need them the most.