Buying A HUD Home
Your Primary Concerns:
You must decide upfront whether home ownership is truly for you at this time.
That means purchasing within your income limits so that you don't struggle with home ownership.
In addition, you must be ready for "all that home ownership entails" from property taxes, to mowing your own yard, to replacing and repairing appliances—and on and on...
In particular, if you are purchasing a HUD Home in Georgia—you need to know the following:
Earnest Money will be needed upfront to show your sincerity in purchasing the HUD property and to help ensure that you are not just wasting everyone's time.
Depending on the purchase price—you will have to have $500 (purchase offers of $50,000 or less) or $1,000
(purchase offers of more than $50,000) and the earnest money will have to be in "Certified Funds" only—meaning they must be in the form of one of the following:
1) Cashier's Check
2) Money Order
3) Bank Certified Check
The certified funds must be made payable to your Selling Broker—the broker representing you in the transaction—"prior to" electronic bidding.
Your Selling Broker must explain the Earnest Money forfeiture process to you prior to submitting your offer and if your offer is accepted the Earnest Money must be deposited on the next business day.
A Pre-qualification letter from the lender of your choice will be needed and your Selling Broker must put the pre-qualification on their letterhead prior to submitting your offer.
If you overbid on the FHA (AS-IS) value and you will be using FHA financing—you must pay the difference in cash.
If you are purchasing with all cash—that too must be proven, verified and submitted to HUD on the Selling Broker's letterhead.
If you are purchasing a HUD Home as a non-profit organization and your goal is to rehab and resell, or rent properties—you will have to sign a "Land Use Restriction Addendum" that will survive the closing and will hold the non-profit liable for improper use after closing.
Other Key Points & A Review of What Has Just Been Discussed
• Prior to purchasing your HUD Home you should be pre-qualified and have a $500 or $1,000 Earnest Money in certified funds—depending on the price of the property.
• If you choose FHA financing and you are purchasing as an owner-occupant you may be eligible for $100 down if you are purchasing in Georgia.
• Broker Bonuses are available in certain states and at certain times.
• You and your agent will submit a bid online—and an original sales contract will also be submitted if your bid is ultimately accepted by HUD.
• Be sure that all purchaser(s) are on the contract and their name(s) are signed and printed in the same style.
• The purchase price must be rounded to the nearest whole dollar amount. Conventional Financing and a Cash Purchase is always an option on HUD Homes.
• You can choose among various financing. If the property is in decent condition FHA will normally “insure” (you will see—“IN” or INSURED listed near the photo) the property and you could choose an FHA 203b loan (FHA Standard Financing).
If the property is listed (IE) or INSURED w ESCROW that means it is “insurable but there is an escrow fund set aside” for what are normally minor repairs (less than $5,000 in repairs needed)—by being insurable it too would qualify for FHA 203b financing.
• If the property is listed as (UI) or UNINSURED that means that the property “is not insurable” with FHA 203b financing but could still be purchased with FHA 203k (Rehab Loan in addition to standard loan) financing.
Use caution when purchasing a HUD property that is uninsurable (UI) as they usually have major repairs that are needed—whether they are readily apparent to you or not.
Key Contract Stipulations:
• Per HUD contract—closing costs cannot exceed 3% of the purchase price.
• Selling Commission cannot exceed 5% of the purchase price—if you are purchasing as a non-profit you would not have to enter any amount.
• If you are purchasing the property as an owner/occupant you must occupy the property for 12 months after closing and you could not have purchased a HUD Home as an owner-occupant within the past 24 months.
• If you are an Officer, Teacher, Firefighter, EMT or Non-Profit purchaser you may be entitled for an additional discount on the purchase price—if the property qualifies.
• You must close with a HUD designated Attorney and the closing must be 45 days or less—if 203k financing is sought—60 days or less. Extension Addendums are available, however there may be a fee to extend the closing deadline.
• Lead Based Paint Addendum must be attached if the property was built prior to 1978. Other addendums must be attached if applicable to the contract.
• All purchaser(s) must sign and initial the written offer contract—if the electronic bid offer is accepted.
• As a purchaser your identification and contact info will be needed on the offer contract.
• The Real Estate Broker (Selling Broker) must include all contact info on the offer contract—including signatures, agent’s name and phone number—and other identification information.
Final Thoughts on HUD Homes
Purchasing a HUD Home can be in many cases a great way to purchase your new home. However, purchasing a HUD Home or any home is no substitution for wise money management.
However, if you purchase properly, and get the winning bid—a HUD Home with their low down payment requirements and homes that in many cases only need cosmetic fixes—can be a real bargain.
In addition, keep in mind that the HUD Guidelines mentioned above—can and often do change—therefore your lender may be able to provide you more timely and updated information if you are seriously considering purchasing a HUD Home.
For a more in-depth discussion of HUD Homes and how you can purchase one—CLICK HERE...
If you are considering a HUD Home in the Metropolitan Atlanta Area—CLICK HERE...