What is a HUD house?
HUD stands for the federal government's department of Housing and Urban Development. FHA stands for the Federal Housing Administration. HUD and FHA are partners. FHA helps homebuyers buy properties by insuring the loan. If a property owner buys a home with an FHA backed mortgage and then defaults on the loan, the property is foreclosed upon. Once the foreclosure happens, the property is then transferred back to HUD to be sold on the market.
How does a HUD home get to be listed on the market?
HUD takes ownership of the property after it has been foreclosed on. HUD then has a company that searches the title to make sure that it is clear. If the title is clear and “marketable”, then HUD sends the property to an asset management company. There are three asset management companies that handle properties in the state of Indiana. They are, HomeTelos First, Oforireo, and Pemco. These three asset companies manage all of the HUD properties in Indiana. Each asset company finds and hires local real estate agents and brokers to list and market their HUD-owned properties. JS RUIZ Realty, Inc. works for all three HUD asset management companies. Therefore, JS RUIZ Realty, Inc. receives assignments from the asset management companies, HomeTelos, Ofori and Pemco to list properties in the local MLS for sale. Just like any other property.
Who can buy a HUD home?
Almost anyone can buy a HUD home! Owner occupants, investors, government agencies, and non-profit organizations can buy HUD homes.
Do I need a Realtor to buy a HUD home?
Yes, you will need to find a real estate broker to work with that can show and make offers on HUD homes. To find a broker, you may visit www.jsruizrealty.com, www.hudhomestore.com, or use a real estate broker that you are familiar with. Be sure the real estate broker you select is registered with HUD and able to submit offers on your behalf. You must have a real estate broker accompany you whenever viewing or entering a HUD-owned property. Entering or visiting a HUD owned-property without a real estate broker is considered trespassing on government property.
Where can I find a list of HUD homes?
All HUD homes are listed for sale at www.hudhomestore.com as well as listed in the local MLS by local listing brokers when active. Navigating www.hudhomestore.com is simple. Start at the home page. Half way down the screen is a search field. There you can fill in detailed information regarding what you are looking. Click the search button and the website will gather a list of homes that meet your criteria. You may also search by individual HUD case ID numbers if you have it available.
How do I decipher the Property Details page?
Once you have obtained a list of properties meeting your criteria, you can select each one by the case number. This will bring you to the Property Details page. Below is a screen shot of a Property Details page. We will now navigate through this page.
Case number: HUD assigns a case number to each HUD property. This home will be referenced by the case number throughout the transaction.
Eligible Bidders: This area will advise regarding whom can bid on this property at this time. If it says:
- Owner Occupants, Nonprofits, and Government Agencies only – then only those groups, not investors can submit an offer at this time.
- All Bidders – then anyone can submit an offer including owner occupants, nonprofits, government agencies and investors can submit an offer at this time.
- Good Neighbor Next Door Participants Only – then anyone who qualifies for the Good Neighbor Next Door program (including teachers, firefighters and police) can bid, but no one else can submit an offer at this time.
Bid Submission Deadline: This area advises when the deadline is to submit a bid. If it says:
Daily at Midnight CST – then the Eligible Bidder can submit a bid by midnight and the bid will be opened the next day. All bids are opened daily.
12/31/2011 11:59pm CST (a date) – then the Eligible Bidder can submit a bid by midnight of the date given. Bids will not be opened before that date. All bids are sealed until the next day after the bid submission deadline date. Bid Submission Time Remaining: This area advises the length of time left before the Bid Submission Deadline.
PROPERTY INFO tab
- Address: Property address
- Appraisal Date: This is the date that the appraisal was completed by a HUD approved FHA appraiser.
- Bed/Bath: This is the number of bedrooms and bathrooms in the home.
- Total Rooms: This is the total number of rooms in the home.
- Square Feet: This is the square footage of the home (without counting a basement if there is one.)
- Year: This is the year the home was built
- Property Design: This is the style of the home.
- Parking: This area will indicate if there is a garage or on street parking
- HOA Fees: This area will indicate if there is an HOA, and if so, the amount of the dues.
- List Date: This is the date that the property was listed for sale.
- Listing Period: This area advises what in period the listing is. If it says:
- Exclusive: This means it is only open to bidders that are Owner Occupants, Nonprofits and Government Agencies.
- Extended: This means that the original listing has been extended and it is open to All Bidders daily.
- Lottery: This means that bids may be submitted by Nonprofits and Government Agencies only or Good Neighbor Next Door eligible purchasers. (See the Eligible Bidders section to see who it applies to.)
- Period Deadline: This is the same as the Bid Submission Deadline.
- List Price: This is the current list price for the home.
- As-is Value: This is the original list price of the home. Note, it may be the same as the current list price if no price reductions have been made.
- FHA Financing: This area indicates the insurability status of the property. (See “What do insurability codes mean?”.)
- 203K Eligible: This area indicates if the property is eligible for a 203k loan. If the insurablilty status is IN or IE then it may not be necessary to use FHA203k financing. If the insurability status is IE or UI then it is possible FHA 203k financing should be used.
- Repair Escrow: If the property is an insurability status of IE (insurable with escrow) then there will be an escrow amount. This means that the property needs some minor repairs (under $5000) to bring it up to FHA standards to obtain a FHA mortgage. HUD will escrow that amount of money. HUD does not give the buyer the money but will add it on to the mortgage amount and then the lender will escrow that money to complete the repairs after closing (see “What do insurability codes mean?” for more details.).
This page will list any addenda or HUD property disclosures associated with the property. Please click on each item and read the information carefully. There will be a property condition report giving more details about the condition of the property. There may also be other addenda pertaining to the property that is important to read.
This page will map the property’s location
AGENT INFO tab
This page will give contact information regarding the asset company that is managing the property for HUD. Also, the local listing broker that is listing and marketing the property and the Field Service Manager (FSM) that is caring for the condition of the property (securing it, cleaning it, grass cuts, etc.).
What do the Insurability codes mean (IN, IE and UI)?
- IN – The property does not require any repairs to be eligible for FHA financing.
- UI – The property needs too many repairs to qualify for an FHA finacing. This type of home would likely have to be purchased with cash.
- IE – There are minor repairs needed (cost to repair under $5000) to bring the property up to FHA standards so that the home qualifies for FHA financing. The cost of the necessary repairs have been estimated (by an FHA appraiser). This is the Escrow Amount detailed under the Addendums tab on the Property Details page on the HUD website. A 10% buffer is added to that amount. If you are purchasing a property that has an IE insurability status and getting an FHA loan, then your lender would add the escrow amount to the loan (not the purchase price). So if you bid on a property that is IE, with an escrow amount of $2200 and you bid $100,000 for the property and the bid is accepted, then your purchase price is $100,000 but your loan amount is $102,200. The lender then escrow’s, in essence puts that amount ($2200) into a savings. After the property is closed, the buyer has the repairs completed. After the repairs are complete the lender is notified and they send an appraiser to confirm that the work was completed. They then will release the escrow funds to pay the contractor for the repair work. Now the property meets FHA guidelines and the transation is complete. With recent updates and changes to HUD's sales process, repair escrow amounts are now dependent on the buyer's appraisal.
When can owner occupants vs. investors bid on a property?
When and owner occupant, investor, nonprofit and Government agency can bid on a property is directly tied to the insurability status. If a property is a(n): IN or IE insurability status - Then the property will be listed on the market in an Exclusive bidding period for thirty days. This means that only owner occupants, nonprofits and Government Agencies and bid on the property. Those thirty days are then broken down into a sealed bidding period and a daily bidding period. Upon an Exclusive listing period, the first ten days are a sealed period. An owner occupant, nonprofit and Government agency can submit a bid at any time. However, the bid will not be opened or reviewed until the eleventh day, when all bids are opened at the same time. If none of the bids meet HUD’s minimum net, then the property will remain on the market. It will move to the daily bidding period for an additional twenty days. This is still exclusive to owner occupants, nonprofits and Government Agencies. After the thirty day period is over, the property will then move to an All Bidders status. This means that owner occupants, nonprofits, Government Agencies AND investors can bid on the property. UI insurability status – It will be listed in an Exclusive bidding period for owner occupants, nonprofits and Government Agencies, but for five days only. It will then move to the All Bidders status on the sixth day. This means that owner occupants, nonprofits, Government Agencies AND investors can bid on the property.
What does “AS-IS” mean?
HUD homes are sold in “AS-IS” condition. HUD will ensure that the title to the property is free and clear, but HUD will not make any repairs to the property. Simply put, what you see is what you get. This ties very closely with the type of mortgage or loan you will be able to obtain on the property. If a property needs many repairs, it may not qualify for financing at all. Minor repairs may be eligible for escrow (see “What do insurability codes mean?”). HUD will not complete any repairs to a property.
What is earnest money?
As with any real estate transaction, earnest money is required to purchase a HUD home. Earnest money is like “good faith” money or a “promise”. It is money that you send to the seller (HUD) after you have an accepted offer on a property. Your agent will send an original of the signed contract to HUD along with this “good faith” or “promise” money. It says to the seller that we are serious about proceeding to close on this property. HUD has spelled out guide lines about the amount of earnest money that is required for each house. If a property has a purchase price under $50,000 the amount of the earnest money will be $500. If the property has a purchase price over $50,000 the amount of the earnest money will be $1000.
Should I get a home inspection?
Yes, all purchasers are strongly encouraged to have a home inspection performed to identify any possible defects. HUD homes are sold “AS-IS” and HUD does not warrant or make any representations concerning the condition of the property. The purchaser must take actions necessary to satisfy that the property is acceptable to themselves and agrees to accept the property in “AS-IS” condition. Buyers are responsible for all expenses incurred in performing an inspection.
What is the HUD $100 Down program?
This is an unbelievable opportunity for owner occupant buyers of HUD homes! This is a program that HUD initiated in certain areas of the country. Fortunately, Indiana is part of the program. The program is only for owner occupants and not for investors. The normal down payment on an FHA mortgage is 3.5% of the purchase price. However, if you are an owner occupant purchasing a HUD home and obtaining an FHA mortgage, the down payment is only $100. You can’t pass this one up! See your lender or real estate agent for more details.
What is the Good Neighbor Next Door (GNND) program?
This is a program developed by HUD that is specifically for Teachers, Police Officers and Firefighters. There are a few homes that go on the market in a Lottery round. Each property in a Lottery round specifically states in the Eligible Bidder area of the property details page at www.hudhomestore.com if the property is available for the GNND program, Government Agencies and or nonprofits. These properties must be in a Lottery round AND state eligibility for GNND. They can then be purchased by a teacher, police officer or firefighters. These homes are located within areas deemed by HUD to be a revitalization area. These homes can be purchased at 50% of the list price. See your real estate agent for more details.
Simple steps to buying a HUD home:
- Get familiar with www.hudhomestore.com to search for properties
- Find a HUD registered real estate agent
- Find an FHA approved lender
- Start looking at homes
- Have your agent submit an offer on a HUD home
- Complete a HUD contract package and send your earnest money
- Complete an inspection
- Close on your new HUD home!!!!