By all accounts, the numbers of HUD Foreclosures are on the rise everywhere. As of today there are currently 45 HUD Foreclosures listed in the City of Tacoma. Since so many people I talk to around Tacoma these days are considering buying a house right now especially because they’ve heard there are lots of cheap foreclosures- this is information you want to know.
1. What is a HUD Foreclosure?
Unlike the vast majority of foreclosures currently flooding the market, HUD Foreclosures are not owned by banks. HUD Foreclosures are 1-4 unit homes (this means it could be a single family house or condo up to a 4 unit apartment building) that are the result of an FHA Mortgage being foreclosed on.
2. How are they different from regular bank-owned foreclosures?
A bank owned home means the seller is someone like Wells Fargo, Deutsch Bank, or perhaps some random bank no one has ever heard of. Each bank has its own method of pricing the house, negotiating a sales price, deciding what they will and will not to to repair it for the buyer to be able to finance it, etc. Also, they’ll take the offer that gets them out as quickly for the highest amount of money- every time. They usually use normal real estate contracts, although they often include additional forms provided by their legal departments. The process of making an offer and negotiating is really not all that different from buying from a normal human seller, except it can take a little longer to get responses.
HUD homes, since they are owned by the government, all use the same (excessively, annoyingly, overly complex) process for selling the house. That’s the bad news. You have to have your Realtor bid online on your behalf. They are still going to take the offer that makes them the most money- but make a lot of special efforts to see that the homes are purchased by normal people (read: not investors or corporations) buying their first place with an FHA loan. Since every first time buyer I’ve had in the past 3 years (save 1) has used an FHA loan to buy their first house, (and I assume most of the other first timers out there plan to do the same) this gives you an advantage. In fact there is a period of time where ONLY owner occupants can bid, before they even give investors the opportunity.
3. Wait wait wait. What’s an FHA Loan again?
I’m going to quote Wikipedia here…
FHA’s mortgage insurance programs help low- and moderate-income families become homeowners by lowering some of the costs of their mortgage loans. FHA mortgage insurance also encourages lenders to make loans to otherwise credit-worthy borrowers and projects that might not be able to meet conventional underwriting requirements, protecting the lender against loan default on mortgages for properties that meet certain minimum requirements—including manufactured homes, single and multifamily properties, and some health-related facilities. The basic FHA mortgage insurance program is Mortgage Insurance for One- to Four-Family Homes (Section 203(b)).
FHA allows first time homebuyers to put down as little as 3.5% and receive up to 6% towards closing costs.
Since buyers going FHA only have to put 3.5% down to buy a house, most first timers these days take this option. Sort of like student loans. The government tells the bank giving you the loan that if you default, they’ll back it up with an insurance policy. (FYI, you pay for this policy monthly- it’s called Private Mortgage Insurance). If you have an FHA Loan and you go into foreclosure, it will become a HUD Home.
4. How do I make sure I’m seeing all the HUD Foreclosures for sale in Tacoma and then buy one if I like it?
HUD Foreclosures are listed with Real Estate Agents on the MLS like any other listing, but they are also listed all together on the website www.Hudhomestore.com. You can go there and search by zip code, city, state, or whatever you want. If you find a house you like, your Realtor can take you out there to look at it, and if you like it- go through the (ridiculously complicated, did I mention its ridiculously complicated?) online bidding process for you.
Your Realtor has to be registered with HUD and have a special number to bid on your behalf, the registration process takes weeks- so ask your agent when you start working with them if they have an NAID number. I totally have one, just in case you’re wondering. 🙂
5. Anything other fun facts?
– In spite of what you may have heard, you do get an inspection period and you CAN get a home inspection on a HUD Home.
– HUD pays for an FHA Appraisal of the house that is good for 6 months. This will cost you $600 on any other house and is required for your loan, so that is pretty sweet.
– The earnest money amount is set by HUD and is a very reasonable $1,000 for homes over $50,001. That will go towards your down payment or whatever you’ve worked out with your lender.
– Again, in spite of foreclosure horror stories your crazy uncle might have told you, HUD Properties are sold with clear and marketable title and buyers DO NOT aquire bills or liens.
Hope this article was interesting. Feel free to leave any questions in the comments or email me if you would like me to help you find yourself a HUD Foreclosure.
