Why is this? It all has to do with how a property becomes a HUD property and the operating philosophy of HUD.
“How does a property become a “HUD home?” If a homeowner stops making payments on either an FHA or VA loan, the lender who is servicing that loan starts the foreclosure process. If the foreclosure process is completed, that lender then makes a claim with HUD (because, remember, HUD insured the lender against default on that loan) to buy the property from them. When this happens, the property is now officially a “HUD home.” HUD must now sell the property.
“So why are HUD homes often sold for less than market value?” If you have ever been in a “bidding war” in a red-hot real estate market, you have likely experienced the frustration and anxiety that comes with that. Even in a “down” market, there are frequent “bidding wars” for foreclosed properties, because potential buyers have been conditioned to see them as “good deals.” Often, investors come in and offer to pay cash. This tends to leave buyers who must rely on mortgage financing on the losing side of this competition. Conversely, when a HUD home goes onto the market, they typically set strict rules on who can bid at any point in time. Typically, they prohibit investors from bidding unless the property is still available after almost two weeks of on-market time. (Also worth noting: As a HUD listing broker, I am prohibited from buying HUD homes.) This goes back to HUD’s mission (“to create strong, sustainable, inclusive communities and quality affordable homes for all”) and how they go about trying to accomplish it: They give owner-occupant buyers a special advantage (and do not put any preference toward cash buyers). To top it all off, they will even assist owner-occupant buyers in terms of financing the repairs through an FHA 203k loan.
“Is there any downside to purchasing a HUD home?”
The first thing that comes to mind is that many times, home will be in disrepair. If you are an investor, you come to expect this. If you are a first time home buyer or owner-occupant, you can have the repair escrow built into your loan to assure that you will have the funds to complete repairs needed to acquire your loan.
Second is that, relatively few real estate brokers are “HUD-registered.” Only registered brokers can submit bids on behalf of buyers for HUD homes. The process is relatively simple for a broker to register with HUD, but most choose not to bother with it. In turn, their buyers could be missing out on what could be a great deal for them. As a HUD broker, I run workshops to help buyers who are interested in buying a HUD home. It is an opportunity for them to ask questions and learn more about the process.
Another question you might be asking is: “Where do I find HUD homes for sale?” Besides asking myself or my team, the best, most up-to-date place to look is www.hudhomestore.com That site also enables buyers to search for available HUD homes in the community in which they are interested.
I hope this has been helpful in terms of providing some insight into why HUD homes should be considered as a viable option when you are searching for a home or investment.
Contact us for more information: 407-574-5920 or firstname.lastname@example.org