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Purchasing a HUD Home

Posted by James DeLoney on Thursday, March 22nd, 2012 at 2:15pm.

Many savvy home buyers are exploring the option of purchasing a foreclosed property from the U.S Housing and Urban Development (HUD) department.  You can search for homes available through HUD Store.   Below is important information about bidding for and purchasing a HUD owned home.

Submitting a Bid

You will need to partner with an HUD authorized broker, broker associate, or buyer’s agent in order to submit a bid. 

HUD Listing Codes

 Insurable (IN)

Properties listed in this category appear to meet FHA 203(b) financing requirements. No obvious repairs are necessary for HUD to insure an FHA loan to a qualified Purchaser.

Insurable with Repair Escrow (IE)

Properties listed in this category are eligible for a 203(b) FHA loan (remodeling/repair costs are included in the loan) with required minimum property standard (MPS) repairs totaling less than $5,000 to be made by the Purchaser, financed by the FHA lender.  If the buyer will use a 203(b) FHA loan, the repair escrow must be used for the needed work specified in the listing. In completing the Sales Contract (HUD-9548), the escrow amount is NOT deducted from the net to HUD to derive the amount that will be entered on line #7, NOR is it added to line #3, the purchase price. There is a separate line in Item #4 for the repair escrow amount to be noted.  The lender making the new FHA 203(b) loan establishes an escrow account for the amount of the repairs.  The amount given with the listing includes a 10% contingency. After close of escrow, the lender will inspect work as it is completed on the house and distribute the repair monies as appropriate within ninety (90) days.  The costs of repairs are included in the loan amount and repaid by the borrower as part of the house payment.  Any funds in the escrow account that are not used for the repairs will reduce the unpaid principal balance of the loan.  Note that the repair escrow only applies to FHA 203(b) financing.  If non-FHA financing is used, or if an all cash purchase is made for an IE property, the repair escrow does not apply.

Uninsurable (UI)

Properties listed UI, uninsurable, need more extensive repairs after close of escrow and are deemed not eligible for FHA mortgage insurance in their “as–is” condition. All–cash, or other financing not involving FHA, is often used to purchase UI properties.

Insurable “With Conditions” (May be either IN or IE listing code.)

Properties that are listed either IN or IE may also have a notation in the listing that indicates –With Conditions.– Typically the conditions involve having a systems check, roof inspection, or other property condition inspection as required by the appraiser to satisfy lender requirements. The inspection fees expended are a buyer’s cost. Some fees may be reimbursable at closing, depending upon the Region where the property is located.

Owner occupant bidders get first priority.

Insurable Properties:

There will be a 10 day bid period for all bids to be received.  If no offers are accepted, bids will be reviewed daily (up to 20 days) for owner occupant purchasers only.

Uninsurable Properties:

For UI properties there will be a 5 day exclusive Owner Occupant period. After the 5 day exclusive bid period, bidding will be open to all purchasers on a daily basis if an acceptable owner occupant offer was not received.

If Your Bid is Accepted:

If your bid is accepted you will be notified via email from the AM and the bid information will be posted on the web site, as well as any possible back up offers that are acceptable to HUD.

When a bid has been awarded, brokers will have 2 business days to submit contracts to the Asset Manager.  This means:  Every required document necessary to consummate the transaction must be completely signed, sealed and delivered to the Asset Manager, along with the earnest money deposit check made out to HUD, within 2 business days from award notification.

Required Forms:

Sales Contract - HUD Form 9548 and certification of broker form.

Addendums: Lead Based Paint, Radon & Mold, Earnest Money, Forfeiture and Extension Policy, Home Inspection, Owner Occupancy (if applicable).

A Pre-Qualification letter from a certified, licensed lender is a requirement on all sales containing a mortgage contingency.

Inspection Period:

All HUD Homes are sold "As Is."  HUD does not make any repairs to the property.  Therefore, it is important that the buyer do a visual inspection prior to submitting a bid.  The buyer is also encouraged to have a professional home inspection performed with the utilities activated after the contract has been accepted and signed by HUD.  The buyer has a 15 day period after contract acceptance to activate utilities and complete the home inspection.

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