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HUD
homes offer many buyers the chance to purchase their home with
built in equity, and allows investors some fantastic deals, as
well.
by
Eric Bramlett
When
the foreclosure rate is particularly high, as it is in 2007,
HUD's inventory swells,
and
there are deals to be made. HUD deals are very different from
traditional purchases, however, so make sure and follow sound
advice before purchasing your first HUD
home. Follow these tips, and you will be on your
way.
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1.
All
HUD Homes Aren't Great
Deals
Many
buyers mistakenly assume that, if the US Department of HUD is
selling, it must be a great deal. This couldn't be further
from the truth! Many Realtors relentlessly market HUD homes to
drum up business, and this can create a glut of HUD buyers.
When the HUD inventory is particularly low, oftentimes buyers
will bid the property up to, or above the fair market value.
Look at every HUD deal on its own merit, and make your
decision based on that.
2.
Understand
the Bidding Process
HUD
purchases are very different than conventional deals because
they follow a "blind" bidding process. The bidding date is
released by HUD, and each buyer submits their best
offer-without the knowledge of any other bids. As long as HUD
finds the highest offer acceptable, that offer is accepted.
HUD retains the right to refuse all offers.
3.
Know the Difference Between "Owner-Occupant" &
"Investor"
One
of HUD's goals is to increase the number of US citizens who
own homes. Because of this, they give preferential treatment
to owner-occupants over investors. Owner-occupants have the
first 10 days to bid on any home before it is released to
investors. A buyer may bid as an owner-occupant once every two
years. Make sure and bid honestly-otherwise it is illegal, and
can result in hefty fines.
4.
Anticipate Repairs
You
are allowed the opportunity a third party inspection before
closing, but buyers cannot negotiate repairs based on the
results. Backing out of HUD deals & retaining your earnest
money is trickier than conventional purchases, too, so you may
run the risk of losing your earnest money. Make sure and go
through the home thoroughly before bidding on
it.
5.
Continuously Monitor the Inventory
As
foreclosure rates rise and fall, so does HUD's inventory. The
laws of supply & demand definitely apply here-when the
inventory is high, your chances of getting a great deal are
higher than when they are low. Follow the asking price &
sales price of HUD homes-if they are selling far over asking,
it might not be the time to buy.
6.
Make Sure Your Realtor & Lender Know the
Process
After
your bid is accepted, the paperwork begins! In
Texas,
HUD requires that you submit original signed (in blue ink)
paperwork to the HUD agent's office within 48 hours of the
bid's acceptance. If the paperwork is incorrect, you are
allowed one revision-which must be received within 48 hours.
They are just as strict with a lender's closing documents-so
make sure both your Realtor & lender are very familiar
with the HUD process. Oftentimes, the HUD agent's office will
be located in a different city-and often, the escrow agent
will be located in yet another city-this can put a very
interesting twist on the process, and time
constraints.
7.
Act Quickly & Decisively
Because
HUD places very strict time constraints on bidding, and due to
the bidding process, you must act quickly & decisively.
You will typically have 1-2 weeks from the date HUD places the
property on the market until the bidding period begins-and
more often than not, the property will be purchased on the
first day of bidding. Make sure & exercise your due
diligence,
and make your decision quickly-you often won't get a second
chance.
HUD
homes can be fantastic opportunities for a buyer or investor
to get a great deal on a property. However, because the
purchase process is quite different, make sure & do your
research before attempting to find your first buy. Follow
these tips, & you will be on your way to a successful
transaction!
Disclaimer:
The information above is based on Eric's experiences with HUD
in Texas
from 2004-2007. The process continually changes, so make sure
& get the most up-to-date information for your area before
bidding.
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