There's a HUD Home with your name on it
Out of all the homes for sale in your area, there is likely to be one that has everything you want. The trick is simply to find it.
Of course, your real estate agent is going to be a big help. But even the agent will need to know what your priorities are. Is a short commute important to you? Or are schools your biggest concern? How many bedrooms to you think you need?
Before you begin looking at homes, try to decide in advance exactly what you want. This can save you and the agent a lot of time. It's a good idea to actually write down your wishes, and share the list with your agent. This is helpful because he or she will usually have lists of the properties for sale in your area, including all the HUD Homes. In some cities, newspapers carry listings of HUD Homes, but this is not always the case. A broker should have all the information you need.
Almost any home you look at will have room for improvement. But the more that needs to be done to a home, the less you're going to have to pay for it. HUD Homes, because they're sold in "as-is" condition, can often be a great, affordable opportunity for the fixer-upper. Many are in fine neighborhoods and offer outstanding values. And while some HUD Homes do qualify as "handyman specials," many are in very good condition.
HUD does not warrant the condition of its properties, but will give you the information it has about the condition of the property you're interested in. You can use this information in formulating your bid.
There's even a HUD loan program available, the 203(k), where buyers can borrow money to make repairs on some properties. You repay these funds later, as part of your mortgage. Just be aware that 203(k) funds aren't available for all h houses in all areas. Ask the real estate agent you're working with about 203(k) availability in your area.
Beginning to make it your own
Once you've found the home of your dreams, it's time to make an offer to buy it. Before deciding how much to offer, HUD urges you to get a professional inspection. It can also be helpful to find out how long the home has been on the market-if it's been for sale a while, the seller may be more willing to bargain.
After you and the agent have prepared your offer, he or she will present it to the seller. It may be accepted or rejected, or the seller may counter your offer by asking for a higher price or by making changes in the sales contract.
Making an offer to buy a HUD Home is often much easier than the process of buying a home on the private market. You'll submit your offer through a real estate broker, in the form of a sealed bid using the HUD contract form. The person making the highest acceptable bid is generally awarded that HUD Home.
Offers for HUD Homes can only be made through a licensed real estate broker. This way, HUD requirements are met and buyers get the help they need. HUD will pay real estate commissions of up to 6% if the commission amount is requested as part of the bid.
Sometimes HUD accepts an offer that's less than the listing price, depending on market conditions and the length of time the property has been on the market. Sometimes buyers make bids higher than the listing price, if they believe the market conditions demand it,or if the home is particularly appealing.
You will generally make your offer for a HUD Home during a designated "Offer Period." At the end of the 10-day offer period, all the bids received on the home will be opened at a public event which you may attend. (Full-price offers are often opened immediately.) If your offer is accepted, your broker will be notified, generally within 48 hours.
Earnest money. When you make an offer on a home, the seller will usually require an "earnest money" deposit as proof that your offer is serious. If the offer is accepted, your earnest money deposit will become part of your down payment or closing costs. If your offer is rejected, the broker will return your earnest money to you.
You're almost home -- different loans for different home buyers
Just as there is more than one kind of home, there is more than one way to finance it. Mortgage lenders have come up with many different methods of helping you pay for a home - each one with its own advantages and disadvantages.
First of all, you should know that HUD itself does not provide financing. You can obtain financing through a bank or mortgage lender. And since many HUD Homes are eligible for FHA-insured mortgage loans, this often make financing easier to obtain. However, you are not required to get an FHA loan to buy a HUD Home.
Fixed-Rate Mortgage. With a fixed-rate mortgage, your interest rate stays the same for the term of the mortgage, which is usually 30 years. Your principal and interest payment remains stable, making it easier to plan a monthly budget. However, initial interest rates tend to be higher than with other types of loans.
Adjustable-Rate Mortgage. With an ARM, your interest rate and monthly payments start out lower than with a fixed-rate, but your rate and payments can change either up or down, depending on where interest rates in general are going. (If they're going up, your monthly payments will probably go up as well, sometimes significantly.)
FHA-Insured Mortgage. In this type of loan, the Federal Government insures the lender against loss in case the home buyer defaults on the loan. This program was set up so that Americans who can't afford the 10% to 20% down payment required by most lenders can still buy a home. Many HUD Homes can be bought with FHA-insured mortgages, which allow you to purchase the home with as little as 3% down. You do not have to a first-time buyer in order to qualify for an FHA loan.
VA Loan. Under this program, the Department of Veterans Affairs guarantees the lender against loss. HUD Homes may be purchased with a VA loan or any other loan.
Assumable or Non-Assumable. You may find a home with a mortgage loan you can "assume" from the previous owner. This means that the lender is willing to transfer the old loan on the home to you. These loans can be wonderful bargains, and the paperwork is usually not very complicated.
Before you decide which loan is right for you, talk to your loan officer. You'll get information that will help you figure out which option best suits your needs.
HUD brings your up-front costs down
The costs of buying a home are more than just the price you agree to pay for it. Before you move in, you'll have to pay various charges, which we explain below. The good news is, with HUD Homes these costs may be lower than they are with other homes.
Down Payment
Most people know that a down payment is a percentage of the price of the home that must be pain up front, in cash. Many people don't know that HUD can reduce that down payment from the normal 10% to 20% to a much more agreeable figure of 3%, or even less! On a $50,000 home, that means $1,500 versus $5,000 or $10,000.
Closing Costs
This term covers various fees your lender charges for providing your loan, and other expenses. Closing costs typically add up to about 3% or 4% of the price of your home, depending on where you purchase it. But when you buy a HUD Home, these costs are often picked up by HUD-if they are specifically requested, by dollar amount, in the sealed bid offering. If you buy a HUD Home, HUD may pay many of your usual and customary closing expenses plus real estate sales commissions up to 6%. Just remember that closing costs and sales commissions are deducted from the bid amount in making the decision as to which offer brings the greatest return to HUD. Since bidding is competitive, you may, in order to offer a more competitive bid, pay your own closing costs. This makes HUD's net return greater, making your bid more favorable and increasing the likelihood that HUD will accept your offer.
Commissions
These are paid to the broker by the seller, and usually amount to 6% or 7% of the cost of the house. When you buy a HUD Home, the selling agent's commissions are usually paid by HUD. HUD will pay a total sales commission of up to 6%.
Checking it out before you check in
Before you buy anything, you'll want to know exactly what it is you're getting. With something as important as your home, you can't know too much. That's why it's a good idea to get a professional inspection of your home-even before you make the offer. HUD strongly urges every home buyer to get a professional inspection, whether you're buying a HUD Home or not. HUD Homes are sold in "as-is" condition. That means you agree, if you buy the home, to accept it in its present condition. HUD does not pay for the correction of defects in existing homes that it sells or on homes purchased with FHA-insured mortgages. The owner of the home will be responsible for needed repairs. Therefore, be sure of the condition of the home before you submit your offer.
The finish line
The day you finally close on your new home will probably be one of the most exciting in your life. Finally, the long, tedious process of finding a home and getting a loan is over, and by the time the day is done, you'll be the proud and happy owner of your new home.
Before that day ends, you will be asked to sign a seemingly endless number of forms, but the closing agent will go over each one with you. It's all necessary, but you can make it a little easier by asking the real estate agent about it before the big day comes. Also, when you apply for your loan, your lender is required to give you a booklet explaining closing costs, an estimate of how much cash you'll have to supply at the closing, and a list of all the documents you'll need.
Good luck and have fun!
