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2007-03-13 13:21:00

Top 7 Tips for Buying a HUD Home

HUD homes are properties offered by the U.S. Dept. of Housing and Urban Development that offer many buyers the chance to purchase homes with built-in equity, and affords investors some fantastic deals as well.  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.
Tip #1 --  All HUD Homes Aren’t Great Deals. 

Many buyers mistakenly assume that, if 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, often  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.
Tip #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 his 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.
Tip #3 -- Know the Difference Between 'Owner-Occupant' and 'Investor.' 

One of HUD’s goals is to increase the number of U.S. residents who own their 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 is illegal, and can result in hefty fines.
Tip #4 -- Anticipate Repairs. 

You are allowed an opportunity to conduct a third-party inspection before closing, but buyers cannot negotiate repairs based on the results. Backing out of HUD deals and 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.
Tip #5 -- Continuously Monitor the Inventory. 

As foreclosure rates rise and fall, so does HUD’s inventory. The law of supply and demand definitely applies here. When the inventory is high, your chances of getting a great deal are higher than when they are low. Follow the asking price and sales price of HUD homes -– if they are selling far over asking, it might not be the time to buy.
Tip # 6 -- Make Sure Your REALTOR and 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 and lender are very familiar with the HUD process. Often the HUD agent’s office will be located in a different city and the escrow agent will be located at another location. This can put a very interesting twist on the process, and time constraints.
Tip #7 -- Act Quickly and Decisively. 

Because HUD places very strict time constraints on bidding, and due to the bidding process, you must act quickly and decisively. You will typically have one to two 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 by the first bid deadline. Make sure to exercise 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 and do your research before attempting to find your first buy. Follow these tips, and 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.
(Eric Bramlett is the Broker and co-owner of One Source Realty in Austin, TX. Eric invests, renovates, and develops real estate in Greater Austin.)  

(Editor's Note: There are two e-books available on this subject: HUD Homes for Sale -- A Complete Buyer's Guide and HUD Homes for Sale -- Sales and Marketing Guide for Real Estate Agents. 100% of the Proceeds from both e-books are donated to CARE)

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