Cathy's "HUD"DLE Corner

Welcome to Cathy's "HUD"DLE Corner!
  
I get so many calls regarding questions on the HUD buying process that I decided to provide a summary for my buyers so they could get a quick overview of the process.    Learn the process and be empowered!  Don't miss out on these great deals!

A QUICK BACKGROUND FIRST...
It is important to define what a HUD home actually is before we get started.  Luckily, it is a very simple explanation!  It starts with a home owner who has an FHA (Federal Housing       Administration) loan.  All FHA loans are backed by the government.  Therefore, when the owner 
  unfortunately defaults on his/her FHA loan, the bank that provided the loan takes
   back the home and in turn, conveys it back to the government.  (OK...there are a
   lot of steps to get to that point, but we are keeping it simple here!)  The 
   government then places it back on market with a listing broker and it becomes
   available for you to purchase.

   In order to get it back on the market, there are many stages it goes through,
   including obtaining an FHA appraisal.  That final appraisal is considered the fair market value and that amount will always be listed on HUD's website for you to see.  In fact, when the property comes out on the market, that is the initial list price you will see!

HUD homes can be a single family up to a four unit building.  (There are no HUD buildings over 4 units.)  Additionally, a HUD home can be priced anywhere from $1 up to $500,000!   Remember, HUD homes are simply homes with a defaulted FHA loan.   You'll find homes that need a lot of rehab and homes that need very little!  Keep looking in this incredible market to find YOUR favorite gem!    

STEP 1 - GET PRE-APPROVED!

This is ABSOLUTELY the very first thing you must do in order to place a bid on any HUD property!   Let me repeat that...this is ABSOLUTELY the very first thing you must do in order to place a bid on any HUD property.   No kidding!  You will need to be pre-approved by a lender prior to placing your bid if you intend to get a loan on any property.  If you are a cash buyer, then you are still not off the hook......you will need to have a proof of funds.  That can simply be a letter from your bank stating you have sufficient funds or if you do online banking, you can print out your statement showing your name and cash amount avaialble.   Make sure that you do not skip this first step so that you can be sure to get yourself in the starting position! 

By getting pre-approved, you will discover your current credit score.  Ironically, I get a lot of buyers stating that they are actually afraid to find this out!  But I'm hear to tell you that even if you find out you have a low score and cannot be pre-approved at that exact moment, some lenders will put you in a "credit repair program" and advise what you can do immediately to get on the path to increasing your score!  Now that is giving you a powerful direction!  The lender can then check back on your credit in a few weeks or a month to see if you have reached the right score level and let you know when you are in the starting gate to get a loan.   This is absolutely a  win-win situation, so don't be afraid to find out what your credit score is at the moment!   Instead, be empowered to find out what you need to do to get yourself on the road to home ownership!  I also urge you to shop several lenders until you arrive at one that you resonate with and can offer you the best deal possible.   

STEP 2 - SEARCH FOR HUD PROPERTIES AT:  WWW.HUDHOMESTORE.COM 

Find all the current properties listed in your hometown and across America!
   Now that you are pre-approved, you are ready to start your HUD home search! 
    Just click on www.hudhomestore.com and start searching for your favorite
    home!  Be sure to type in your state first and  the you can select by County,
    City, Address or HUD Case # (which usually shows up on the MLS).   

IMPORTANT NOTE:  If you find a property listed on this site one day and then discover it is no longer viewable the next,  it simply means that someone was awarded the bid and the home is no longer available.  The lesson learned is quite simple....these homes can go fast, so be sure to hook up with your favorite Realtor® and get out to see your selections right away just in case you want to place YOUR bid on a great HUD home!  (Remember, if you haven't completed Step 1, you can't place a bid !  Just trying to keep you on the right path!)

STEP 3 - UNDERSTANDING THE HUD BID CYCLES

  HUD developed "bid cycles" to help put home ownership back in the hands of
  the Owner Occupants. Since priority is given to the Owner Occupant during the 
  initial listing periods, there is no competition with
  investors.  This means that Owner Occupants always have the first chance to
  bid!

The bid cycles are clearly called out on www.hudhomestore.com under each property listing, along with a convenient count down of the days and minutes left on each bid period.   Let's explore these bid cycles in more depth now so you can better understand the terminology you'll see listed on the HUD website.

1.)  LOTTERY PERIOD   (7 Days)
This period ONLY appears on homes that are located within "revitalization areas" and are available for purchase through the GNND program  (Good Neighbor Next Door).  That means policeman, fire fighters, EMTs and full time teachers pre-kindergarten-grade 12 who meet the loan requirements can purchase these homes for 50% off their listing price!  There are many conditions that one must meet to qualify for this program, so be sure to visit HUD's website or your trusted Realtor® for more information.

IMPORTANT NOTE: You will only see the Lottery period pop up when the home falls in a revitalized area.  Many of the homes listed do not meet these requirements, so you will never see the Lottery period appear on their bid cycles!   

2.)  EXCLUSIVE PERIOD    (For Insurable -30 Days;  For Un-insurable -5 Days)
This period is for  Owner Occupants only....no investors!   What is extremely important to note here is if the propety is listed as "FHA Insurable" or  "FHA UNinsurable".  If the property is FHA insurable, then there is a 30 day bid cycle . Out of that 30 day cycle, bids from the first 10 days are opened on day #11 as if they were all received at the same time.  If there is no winning bid, then the cycle continues on a daily bid cycle until the end of Day #30.  (Investors can bid on Day #31.)

If the property is not FHA insurable, then the Owner Occupant  bid cycle is cut down to just 5 days, with all bids opened on day #6 as if they were all received at the same time. (Investors can bid on Day #6.)

The Exclusive Period is where a lot of the activity occurs for owner occupants eager to get in on the bidding process.  It is important to note if the property is FHA insurable or not so you know just how many days you have to put your bid in if you are an investor, and how many days until you can bid if you are an investor. 

IMPORTANT NOTE:  Options to purchasing Uninsurable properties include the 203K loan or cash. With a 203K loan, you are taking out a "rehab" loan, which the bank must make sure that your buy price, together with the repair costs, are less than or equal to the actual  value of the home after all the repairs are made. 

3.)  EXTENDED PERIOD  (List date + 180 days out)
Open to all bidders. This period runs on a daily bid cycle, with bids opened each following day until awarded.

IMPORTANT NOTE:  With all bid cycles, your bid can be placed up to 11:59 pm the evening of the cycle's last day. 

4.)  DOLLAR PERIOD   (10 Days)
This period is devoted to the initiatives that local governments may have to help address specific community housing needs.                  

5.)  EXTENDED PERIOD
Open to all bidders once again on a daily bid basis.

It is important to note that most homes do not go through all 5 stages.  As noted above, some don't even go through the Lottery period at all, depending on their location.  Most bidding activity centers around the Exclusive and Extended periods. 

STEP 4 -  UNDERSTAND  "INSURABLE" AND "UNISURABLE" STATUS

 Watch out for the "insurable" and  "uninsurable" notations on each property.  If it is marked 
   "insurable", then FHA will lend on it.  If it is marked "uninsurable", then FHA will
    not lend on it.  These designations will have an effect in the EXCLUSIVE 
    PERIOD, which is reserved for the owner occupants only.   If it is not
    insurable, then repairs that have been deemed necessary by FHA to bring the
    home up to a safe status are considered more than $5,000.  Once it goes over
    that  $5,000 threshold amount for repairs, the home is no longer insurable
    by FHA.  Below is a chart that reviews all the listing periods and points out the differences in insurable and uninsurable time frames.

STEP 5 - VISIT THE PROPERTY

   Keep your eyes open to all items that may need repair or updating.  You may note
   carpeting needs to be replaced, walls need smoothing and painting, the kitchen
   appliances are damaged or missing, there are water spots on ceilings or perhaps
   there are missing water pipes.  HUD homes are also winter before they are put on market, so you will find the water and electric turned off.   (In cases of sump pumps, electric to the pump may remain on to avoid any future water damage.)   Therefore, in winter it will be cold inside and  summer it will be hot.  Be prepared and also remember to bring a flashlight to explore all the darker rooms such as the basement or attics.  If you have a relative or friend who could help you assess the property for any repairs, invite them along on your showing to get a second opinion.  Most buyers wait until they actually get the property under contract before incurring the cost of getting a home inspection, since there is a home inspection contingency of 15 days built into your HUD contract.  In fact HUD encourages you to get a full home inspection. ( In our area home inspections can run from $375 -$475 depending on who you use and what they actual inspect for you (i.e. home inspection, termite inspection, radon assessement, etc.).

Also, be sure to ask your agent for any information they have on the property to help you build on your knowledge of this property.   All HUD homes are bought "AS IS", which simply means that you must do your due diligence with respect to your inspection and research of  the property.  Neither the agent or HUD has lived in these properties so there is minimal information that can be given.

STEP 6 - PLACING YOUR "BID"

All bids for HUD properties are placed on line by a HUD registered Realtor®. (Be aware that some Realtors® are not registered!)  There are just a few simple questions that your Realtor® will need from you to input your bid, including the name you wish to take title in, your social security number, your current address, what amount you wish to bid and if you want HUD to pay up to 3% of the closing costs for you or not. 

What is extremely important here (and a fact that may not be expressed to you) is that HUD IS ONLY INTERESTED IN THE NET BID.  You see, after you put in your bid amount, there are two areas of deductions that occur to get to the final net amount.    Those are (1) the closing costs 
   and (2) the Realtor®  commissions.  Both of these amounts get deducted
   from your bid amount to create the final net amount to HUD.   To help increase
   the net amount to HUD, you can always pay the closing costs yourself, or ask
   HUD to pay a smaller amount under 3%.  Note that most first time home buyers
   need HUD to help pay for closing costs because CLOSING COSTS MUST BE PAID IN
   CASH AT CLOSING and that means coming up with additional cash to pay for your
   new home!  This may not be an option for you and that is why HUD offers to help
   pay these costs and make home ownership more available to you!   Additionally, HUD pays for the agent's commissions, which are set at 3% to the listing agent and 3% to the selling agent.   You actually affect the commissions amounts by the amount you bid, since commissions remain a percentage to the bid amount.  Also, the selling agent (not the listing agent) can reduce their commission amount to help reduce the net to HUD.  Most selling agents, however, do not reduce their amount simply because there is so much work involved to getting these contracts through. They also run the risk of the buyer falling out of the deal and no pay for all their hard work!

STEP 7 - WINNING THE "BID"
Your agent informs you that the bid was awarded to you!   Now what happens?  Well, you simply have 48 hrs. to sign paperwork, get your pre-approval letter from your lender, get a certified
     check for the earnest money needed to secure your bid and have
     your agent get all these items to the Asset Manager responsible for
     the property.  WOW!  Talk about  staying connected to your agent! 
     No time to waste now!   Your agent will go over all the necessary
     paperwork with you and guide you every step of the way.  Each
     property will bring with it a unique set of items that needs to
     be addressed.  I won't go into all these possibilities at this time, but
     know that you may experience several bumps along the way. In this market there are many things to consider including lead based paint, mold remediation, extensions to contracts, loan issues, foundation challenges, overbid concequences, repair escrow money, owner's title insurance and so much more!  In fact, when you win the bid, you are actually not in an executable contract yet until all your paperwork is received, evaluated and signed by the Asset Manager.  If any paperwork is not correctly signed, you run the risk of losing the contract!    So take note....it is extremely important  that you have an experienced Agent to guide you through the process and lead you to safe passage in acquiring these foreclosed homes!

STEP 8 - FOLLOW THE YELLOW BRICK ROAD

Congratulations!  You are on your way!  The average closing will take 45 days for those buyers acquiring loans and 30 days for those buying with cash.  You will need to get with your loan 
    officer once your agent provides you a copy of the executed contract with
    HUD so that your bank can start the loan process.   Be sure to respond 
    to your loan officer in a timely manner for whatever documentation they may
    need.  In addition, you will also have 15 days from the signed contract to
    conduct your home inspection.  This will be at your own  expense and is paid
    for the day of the inspection.  Once through your inspectio, your loan officer will be handling the loan process for the next several weeks.   As always, your agent will guide you along every step of the way.  They will be the glue that will hold the entire process together for you, therefore, be sure to engage with an experienced agent. 

 __________________________________

Should you have any questions regarding the purchase of a HUD home, please feel free to contact me anytime.  I am an experienced, registered listing and a selling Agent for HUD homes both in Kentucky and Ohio AND a watchful guardian to all my buyers on the unique road to HUD purchases. 

  just ask cathy...513.673.7726