How to buy a HUD property
Determining what type of property you want is first and foremost. Do you want a multi-family home, single family home, etc.? A lot of HUD purchasers are investors who look to turn the HUD properties into great rental properties, but there’s also buyers who rehab the home back to life to live in themselves or sell at a higher price. Some good features to look for when looking for your ideal home: Location/Neighborhood Garage/Driveway spaceOffice SpaceFireplaceLarge backyard
The best destination to find HUD properties: First place to go, is on the hudhomestore.com. When you click on a property you like, you will find a tab that says, “agent info.” Here you will find the asset manager, the listing broker and the field service manager. This will allow you to get all your necessary contact information to schedule a showing of the property.
Calculating what you can afford: Before moving to quickly in the process, it’s very important to calculate what you can afford. You can generally get a mortgage if the monthly payment including insurance remains at or under one third of your pre-tax income. Buyers with lower levels of debt can typically take on mortgages that will cost about 40 percent of their annual pre-tax income.
Planning a home inspection: Further along in the purchasing process, it’s stressed as a buyer that you make sure to get a home inspection planned before completing the buying process. HUD properties do not have any warranty on them and HUD does not cover the cost of repairs or the inspection itself. To find licensed inspectors you can go to HUD.gov.
How to plan for your purchase: Purchasing a HUD home has several different perks you can take advantage of. Here are some of the incentives:
203(k) Rehabilitation Loan: combines the costs of the repairs into the long-term mortgage loan. This makes it easier than taking out multiple loans for the repairs. Discounts: Teachers, firefighters, non-profit groups, police and law enforcement officers and emergency service providers receive discounts on the listing price. FHA Mortgage Insurance: This insurance acts as a safety net in case you default on the loan, FHA will pay the remainder of the mortgage. This insurance also allows for smaller down payment, but buyer must have credit requirements and be able to afford the property to qualify for this insurance.
Getting approved for a loan: Before proceeding to purchase the home, you must show you can get the funds whether it be via cash, mortgage or loan. You can get a mortgage through a private lender, or you can get one through the FHA. These are both contingent upon passing credit requirements and having necessary income to afford the property. HUD properties can also be purchased with cash, but you need to provide proof of funds.
How to make an offer: HUD properties are listed and available to owner-occupants (those who plan to live in the home) for approximately 10 days. After five days, all bids submitted will be compared to find the highest bid, which would be chosen. If no bid is selected now, they take on another five day “grace period.” After 30 days of listing is when the property then becomes available to investors bids. To place a bid, you contact the listing broker which is found on the “agent info” tab on hudhomestore.com or you place it with the agent you have already been working with.
Prepare for closing: If your bid is accepted, your agent will receive instructions from HUD on how to move forward with the process. You may have 60 days to close on the home, but with some brokers you may close in 30 days. You’ll need to submit a pre-qualification letter with the sales contract that specifies the following:
Ability to afford the cost of the homeType of financing (if any) Any assets that have been verified for closing costs: HUD will sometimes pay up to 5% of the purchase price for certain buyers’ closing costs. This must be in the in writing in the initial bid. The key word is CERTAIN closing costs. If you estimate $5,000 for closing costs, but it only comes to $2,000 then you’re looking at a $3,000 loss. Under some circumstances, HUD will pay escrow fees as well which range between $300-$900.
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