HUD government homes or repo homes where the mortgage was insured by FHA and then foreclosed upon may be bought as owner-occupied homes or by investors
HUD government homes or repo homes where the mortgage was insured by FHA and then foreclosed upon may be bought as owner-occupied homes or by investors. The process for an investor is different and all investors must abide by specific guidelines.
Every foreclosed home for sale by HUD is first placed on the market for ten days where only buyers who intend to occupy the home are allowed to bid. This is called the Exclusive Listing period and investors are not allowed to bid during the first 10 calendar days after the home listing is posted. Listings are posted every Friday morning and from that time, for the next ten calendar days, as an investor, you may not submit an offer.
Once the 10 calendar day exclusive listing period has passed, they open the bid to the general public, which includes bids by investors. This general public bid period is where as an investor you can make an offer though a real estate broker who is licensed to sell HUD homes and these bids are reviewed and the highest acceptable bid will be selected.
HUD homes are priced and sold at market value or what homes in the area are selling for through an appraisal process. If you, as an investor, are interested in a hudhome, you should indicate to your real estate agent to keep an eye on any given home you are looking at for an investment to ensure you will have a chance to bid once the exclusive listing period for owner-occupied bids is closed.
If you are successful in making a bid as an investor, you must follow the guidelines. Within 48 hours after your bid acceptance, your real estate broker must submit a signed sales contract and then you will have 45 days to close on your HUD home investment.
Down payments are different for investors. As an investor, if you win a bid on a one-unit hudhome, a 25% minimum down payment is required. If you win the bid on two to four units, a 15% minimum down payment is required.
Earnest money is also required by HUD when buying a hudhome, even for investors. HUD requires $1,000 earnest money for offers more than $50,000 but earnest money never exceeds $2,000. $500 is required for home priced and sold at $50,000 or less and if you are purchasing a HUD vacant lot, 50% of the listing price will be your earnest money requirement.
As an investor, your earnest money may be returned under certain conditions. For uninsured sales, 100% of the earnest money is forfeited by the investor for failure to close, no matter what the reason. It is important to note here that even as an investor you only have 45 days to close so ask your real estate agent what is required by you to ensure you close on time and do not forfeit your earnest money.
If your sale is an insured sale, 50% of your earnest money will be forfeited for failure to close or if the investor is considered to be an unacceptable buyer. 100% of your investor earnest money will be forfeited if you fail to close on your investment property for any reason within the 45-day period.
All other criteria for buying hudhomes, whether you are an investor or buy the HUD home as an owner-occupied residence remain the same. For example, once your bid is accepted as an investor, your real estate broker must submit your signed sales contract within 48 hours. You and your real estate agent will then work with an appointed closing agent and submit the required documents to close within the 45 day time period. Failure to close in the prescribed timeframe, may cause you to lose your earnest money.
It is recommended that you use the appointed closing agent. If you choose your own closing agent, they will not pay their fees. They will, however, pay the fees of their approved closing agent.
If you find you can’t meet the 45-day deadline to close on your new investment property, your real estate agent should contact the closing agent two weeks prior to the 45-day deadline. Extension fees are required if HUD accepts your Extension Request Form as submitted by your real estate agent. All investors must pay these extension fees in certified funds, cashier’s check, or money order. Fees are set forth on the following basis. If the investment hudhome you are buying is $25,000 or less, the fee is $150. If the investment property is $25,001 to $50,000, your extension fees will be set at $225. Finally, if the investment home you are buying is $50,000 or over, you will be required to pay $375. Again, all fees must be paid in certified funds as described above.
Buying a foreclosure home as an investment can be an easy process if you make sure the real estate agent you are using is knowledgeable and qualified to sell hudhomes. Seek out real estate brokers who are licensed to sell these properties and are aware of the timelines, bidding process, and deadlines for investors to ensure you win the bid. Your real estate agent should also be versed in earnest money and down payments required by investors as they vary from owner-occupied dollars. Finally, if you find you need to file an extension for closing as an investor on a hudhome, make sure your real estate agent understand the fees involved and how they are to be paid.
If you think a foreclosure home is an investment you want to make, remember that all HUD homes are sold on an “as-is” basis and do require a home inspection by a licensed home inspection contractor. Make sure you understand that if any needed repairs or zoning changes are required that you will need to take care of this on your own. There are no warranties or help with zoning changes on your behalf as an investor.
Investing in a distressed property can be a good idea if you wish to rent out the homes you buy or revitalize them and resell them at a higher profit. You are encouraged to make sure your real estate broker is extremely educated in handling your investment purchase.
Available HUD homes can be viewed online on their official web page.