"Buying HUD repos, foreclosures, and fixer-uppers---not an infomercial!" Don't worry, this is not going to be the copy from the late night infomercial, featuring a man with seven beautiful model girlfriends, bell bottom pants, and 14 cars in his garage, seen blurry-eyed on the E! Channel sometime after 3am last summer. Hopefully, this will be of some value. I get a lot of comments and questions about my newsletters. Interestingly, the most prevalent question is, "where do get your material?" The material ALWAYS comes from my daily work experience as a mortgage banker. The topics discussed here each week are directly related to questions asked by a borrower or agent or by researching a topic that I believe necessary to stay at the top of my game. With the exception of the times I credit others on the bottom of the email, I write all of these myself. Don't be so shocked! Today's topic is a perfect example. Although I had a different topic planned for this week, today I received the following email and I think the answer will be helpful to everyone: --------------------------------------------------------------------------------------------------------------------------------------- Aaron--- "I want to do some HUD stuff...are you familiar with their requirements? I am learning about this because I have some interested people. Most are investors...so, it would be one of those investor loans we talked about in the past. What should my buyer expect?" Gina ----------------------------------------------------------------------------------------------------------------------------------------- Gina---- There are many people active in purchasing HUD homes and even more people trying to get into it. Before you jump in, make sure you are well-versed in purchasing HUD homes. This will separate you to your investors and clients who will be relying on your advice and experience. To help out, I highly recommend visiting the HUD website at www.hud.gov. Spend some time going through it, however to help you along, here are the most frequently asked HUD questions, directly from their website. Question 1: What is a "HUD Home"? Answer: When someone with a HUD insured mortgage can't meet the payments, the lender forecloses on the home; HUD pays the lender what is owed; and HUD takes ownership of the home. Then we sell it at market value as quickly as possible. Question 2: Who can buy a HUD home? Answer: Anyone! If you have the cash or can qualify for a mortgage, you can buy a HUD home. Question 3: Are HUD Homes meant for people with low incomes? Answer: HUD homes range in price, but most are affordable for low- and moderate-income Americans. Question 4: Is it true I can get a HUD Home for a dollar? Answer: No. HUD sells homes at market value - that means that the price is set based on the price of similar homes sold in the area. Question 5: If the HUD Home needs repairs, will HUD make them? Answer: HUD Homes are sold "as-is," without warranty. That means that HUD will not pay to correct any problems. But even if a HUD Home needs fixing up - and not all of them do - it can be a real bargain! For example, HUD's asking price on the home will reflect the fact that the buyer will have to invest money to make improvements. HUD might offer special incentives such as an allowance to upgrade the property, a moving expense allowance, or a bonus for closing the sale early. And keep in mind that on most sales, the buyer can request HUD to pay all or a portion of the financing and closing costs. Your real estate agent will have details. We encourage you to get the home professionally inspected before you make an offer so you will know what repairs you may have to make BEFORE you submit your bid. Question 6: How do I buy a HUD home? Answer: Start by finding a participating real estate agent. Your real estate agent must submit your bid for you. Normally, HUD Homes are sold in an "Offer Period." At the end of the Offer Period, all offers are opened and, basically, the highest reasonable bid is accepted. If the home isn't sold in the initial Offer Period, you can submit a bid until the home is sold. Bids can be submitted any day of the week, including weekends and holidays. They will be opened the next business day. If your bid is acceptable to HUD, your real estate agent will be notified, usually within 48 hours. Question 7: If my bid is accepted, then what happens? Answer: Your real estate agent will help you through the paperwork process. You'll be given a settlement date, normally within 30-60 days, by which you need to arrange financing and close the sale, or forfeit your earnest money deposit, or pay for an extension of your sales contract. We have an excellent booklet to help you understand the settlement process: "Buying Your Home - Settlement Costs and Helpful Information (http://www.hud.gov/offices/hsg/sfh/res/sfhrestc.cfm)" When you buy a HUD Home, the selling agent's commission will be paid by HUD but only if you make this a condition of your offer. The listing agent's commission is always paid by HUD. HUD will pay a total sales commission of up to 6%. Question 8: How can I find out what HUD Homes are for sale? Answer: Right here by visiting http://www.hud.gov/offices/hsg/sfh/reo/homes.cfm. We update our lists of HUD Homes for sale every day. If you see one that interests you, contact one of the real estate agents in your area who shows HUD homes. They can help you from there. (note to my readers: I have provided an even BETTER link for Southern Nevada below) Question 9: How can I get a loan to buy a HUD Home? Answer: HUD doesn't make loans directly. Consult with a mortgage professional. Question 10: Can I buy a HUD Home as an investment? Answer: Most HUD Homes are initially offered on a priority basis to owner occupant purchasers (people who are buying the home as their primary residence). Following the priority period, unsold properties are then available to all buyers, including investors. Question 11: Is there anything else I should know about HUD Homes? Answer: We encourage every homebuyer and homeowner to be a wise consumer, so be sure to read our consumer information. Houses built before 1978 may have lead-based paint, which can cause harm to your family; so be sure to read about this hazard and about what you would need to do to correct it. Teachers and law enforcement officers qualify for 50% discounts in certain situations. Gina---if you read the above, you read #10. HUDs are first offered to owner-occupied and then to investors. Make sure your investors are ready to put 10% down plus closing costs (unless they have 720+ FICO scores in which case they may qualify at 5% down) and they understand that most lenders will NOT be able to close this loan unless the house is in "livable" condition. Generally what this means is as follows (and there can be more requirements depending on the lender): AC/Heating needs to be working. Water heater must work. No broken windows. All entries to home must be made secure. Electrical outlets must all be covered. Floor coverings cannot be peeling or ripped. They can be dirty. Oven/stove must work. Now, in a lot of these type purchases, you will find some of the above is broken or missing. The investor must be willing to make these minor repairs before getting the loan if the appraiser demands it, which is often the case. HUD will not pay for these but they may make some closing costs concessions as stated in #5. (If you are buying a fixer-upper from a regular seller, you would obviously ask him to make the repairs first.) HUD strongly recommends that you do not buy this home until you have had a home inspector check it out. This means the investor can have money in the house BEFORE he even owns it. If he fails to qualify, he does NOT get this money back. If your investor is not willing to do that, then you have to be careful about which HUD house he buys. I have had borrowers, as recently as last week, who bought this type of home and were shocked to hear they had to spend a few hundred dollars BEFORE they get their loan. In some cases, this can be $1000's or $10,000's. Finally, it is important that you be very honest with us, the lender, about the financial goal of this transaction. Will he/she be holding it long-term or short-term? This is important in determining the best financing for the buyer and it is also important for your buyer to understand some of the laws about "flipping" a home to FHA/VA borrowers. You are almost ready to rock!! Be careful though. There are many people in this field already, many of them real estate professionals, and some with very serious money. You don't want to over-bid, so make sure you pull comps accurately and objectively and know what the real potential on the house is before moving forward.