HUD is short for the federal agency called the "Department
of Housing and Urban Development." The agency offers homes
to "owner-occupant purchasers"; in other words, to people
who are buying the home as their primary residence.
However, there are opportunities for us, as investors, in
this market. Owner-occupants have first crack at foreclosed
properties. But, if these re-possessed properties aren't
sold, then we can have a shot at them. In this session,
I'll show you how to approach this market. HUD
Repossessions A HUD home is a 1 to 4 unit residential
property acquired by HUD as a result of a foreclosure
action on an FHA-insured mortgage. When this occurs, HUD
repossesses the property and offers it for sale to recover
the loss on the foreclosure claim.
All HUD properties available for purchase by the public are
offered for sale at Internet listing sites. Go to
www.hud.gov to find these sites. They're maintained by
management companies under contract to HUD. The site also
provides complete information on HUD rules, programs, and
properties and can direct you to realtors in your area
affiliated with the HUD programs.
Real estate brokers registered with HUD may submit an offer
and contract to purchase on your behalf. HUD pays the real
estate broker's commission, if included in the contract. At
the time of this writing, the highest maximum FHA mortgage
is $362,790 while the lowest maximum amount is $200,160.
Generally speaking, the conditions of HUD homes range from
average condition to terrible. Foreclosure is never a happy
time for the former owners so they may not have kept the
homes in good condition or even damaged them. In addition,
if the properties are vacant, there may be damage from
vandals.
To present an offer on a property, you must make it through
a realtor representing HUD in your area. Contact that
realtor and arrange for a walk-through of properties to
find out what condition they're in.
HUD prefers to sell its properties at fair market value.
However, the condition of these properties does vary. So,
if you're really on top of local property values, you may
be able to find some real bargains. Financing for HUD Homes
HUD doesn't make direct loans; instead, it works with
lenders in a variety of programs. As an investor, you may
be able to get a property for 10% down. HUD tends to like
offers that are a cash-out; that is, you find your own
outside financing.
If a HUD home is in really terrible condition, you may be
able to get a fix up "allowance" from HUD. The allowance
may take the form of a price reduction or a special loan.
To get the allowance, you must make it part of your
purchase offer.
In the event HUD wants to move a property quickly, you may
be able to get a price reduction ("bonus"). So, if you've
got your financing in place and can close within a week or
so, you can get a real bargain. Do Your Due Diligence!
Always have the property inspected by a professional before
you commit to a purchase. In fact, HUD doesn't like to tie
up homes with contingencies that involve inspections so
you'll need to have the inspection done beforehand, anyway.
Key Point: Understand HUD rules and regulations thoroughly
before making offers for foreclosure properties. Also,
establish good relations with local HUD-affiliated realtors
so you can stay on top of the market.
Jack Sternberg
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Jack Sternberg is a nationally recognized expert on real
estate investment and the creator of the renowned "Buyers
First Program" who's been in the business for more than 30
years. Sternberg's deals have totaled over $750 million and
he's been to the closing table more than 1,500 times. For
more, visit http://www.askjacksternberg.com
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