BY HUD, I mean Housing and Urban Development. They have become heavy on home ownership these days, hanging right next to our friends, Fannie and Freddie. We used to think of HUD homes as really very low quality, low priced, homes in the poorest of poor condition – not necessarily so anymore. HUD owns all kinds of homes that have been FHA backed loans and has become pretty systematized in the listing and selling process. They like to be unique though and the process of buying a home from them can be frustrating if you don’t know what to expect. I like selling them as they are good values and at least HUD is predictable! But yes, the first few times, you would have heard me sing a different tune, so I thought I would share some info so that others might have a better experience instead of learning the hard way as I always seem to do.
Here are a couple of tips about HUD homes that a lot of people don’t know.
1. They will often not list below grade square footage. You can find an amazing deal that is flying under the radar because it is being under-advertised. For example, say they are listing a 4 bed, 2 bath home with 1000 square feet main level and 1000 feet below grade (basement) with 2 bedrooms and a bath, they will show it as a 2 bedroom, 1 bath home with only 1000 square feet. You will need to read the remarks from the agent, look in tax records to see the total sq footage and bed/bath count or ask your agent.
2. They do not respond to offers for the first 15 days if you are going to move into it yourself. If you are an investor, looking to buy it to re-sell or rent, they will not look at your offer for the first 30 days on the market. Frequently, the house is pending by the time that 30 day mark is reached.
3. HUD will only allow utilities to remain on for 72 hours and they have the buyer not only turn them on and pay for it themselves, but they also will have the buyer pay to de-winterize AND re-winterize the property. They have strict time lines for this as well so getting an appraisal done in time for utilities to be on can be tricky. The best way to deal with this is to go FHA, because HUD already has an FHA appraisal on hand that they will submit to your lender to use, which also saves you the cost of the appraisal. If you are doing a VA loan, appraisers have up to 10 days to get it done and require utilities on…this makes it very tricky indeed.
4. Look at the listing for any mention of escrow repairs. Also, check out their website at www.HUDhomestore.com for the property details, HUD will post a basic inspection and a bid for any repairs they might be requiring for FHA financing. If you are getting an FHA loan, the good news is that the appraisal is done so that just saved you about $450 bucks. If the appraiser called out any items that make the home not qualify for FHA financing, the money to repair it will get held back with title in an escrow account (thus the term escrow repairs) until the work gets done. You have 60 days to get it done after closing and when the work is done, whether you do it or a contractor, that money will be released to you. Of course the catch is that this money comes from your lender and thus your loan amount is increased by this amount. In a nutshell, FHA is making sure the repairs get done by having you pay for it at closing, then after the work is done, reimbursing you through an escrow account. This one is a hard one to explain, hopefully this makes sense…and try to work with a lender that is familiar with HUD escrow repairs and then it will go smooth. If repairs exceed $5000, then you are out for a regular FHA loan and into a 203K rehab loan but that is another story for another day.
5. As far as the inspection, get one! But also, HUD requires buyers to sign their own contracts, not the one that your Realtor would like for them to work with. It is unique in many ways but especially in how it deals with refund of earnest money for inspections as well. They are pretty lenient with owner occupants but if you are an investor, read the verbiage carefully because they may not be wanting to give you your money back based on inspection findings…or on financing issues either.
6. Financing brings me to another point – if you need an extension for whatever reason (like your lender doesn’t know that they need to have documents to the title company 10 business days before closing), they will require you to pay a hefty fee….and…if you and your lender are ready to roll but HUD needs to extend closing date, which is quite common due to unpaid utilities, etc, they will still make the buyer submit a check to title for the extension…Yes crazy, but it does get refunded at closing if it is stemming from HUD. Still this gets tricky when you, the buyer, has limited funds and HUD needs two extensions, costing you upwards of $700 prior to close, especially when you are needing that money to keep in the bank to show your lender reserves. OR the lender only allows a certain amount of “Credit” to go to the buyer from the Seller.
7. There are pretty much no negotiations on the terms of the contract after HUD accepts the bid. They use their title company (out of state), their resource company to handle the transaction (out of another state), and their property maintenance company (out of yet another state). 45 days to close, earnest money of $1000 unless the accepted offer is under $50k.
8. So you want that HUD home to be your own? You need to work with a designated broker so double check with your Realtor now to make sure that their brokerage is designated, it takes at least a few weeks for HUD to approve brokerages so not a quick fix either. So your Realtor will submit a bid online on your behalf when you say GO, and HUD either accepts or rejects it the next day…at least they are quick to say yay or nay! If they don’t accept your offer and another offer hasn’t been accepted that same day, you can try again that day, they review offers once per day in the AM and bids are due by midnight the night before, their time, which means 11PM if you are in Boise with me.
9. If they accept your offer, you need to meet with your Realtor THAT day to sign all the paperwork, and get a certified earnest money check, and FED-EX all your paperwork to their management company. If they don’t receive it within 48 hours of acceptance of your bid, they say it gets rejected, so move quick! If you miss signatures, they may make you fedex it again so double check it all.
10. From there you are rolling, congratulations on buying a home! And don’t be daunted by the process, as long as you know what to expect, it will go much easier.
Sheila Smith
RE/MAX Capital City
