HUD implications

Asked by Homehunter, Brooklyn, NY Sat Jan 3, 2009

Lots of questions, sorry. When you buy a HUD house with condition issues you are obligated to make the repairs within a certain time frame? Do you have to use their approved contractors? Are they overzealous in identifying problems? What are the advantages to buying HUD Is it that you have a better chance over a bank to get the home if you are planning to occupy? Is the paperwork brutal? What about if you are buying in cash? Are HUD brokers incentivized to sell these homes? Thanks!

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James Wheeler’s answer
James Wheeler, , Tampa, FL
Sat Jan 3, 2009
Like other types of foreclosure properties, HUD homes are generally sold "as is". Any required repairs identified, estimated, and disclosed to you up front as a potential buyer are the result of an FHA appraisal in the context of FHA financing. If you pay cash, then you don't have to worry about these issues. If you're using an FHA loan, then any required repairs are very much an issue. With standard FHA financing, any required repairs must be completed prior to closing. That leads to an impasse in many would-be foreclosure purchases, because the seller (a bank, or a government agency like HUD) is selling the property as is and will not make any repairs, and the buyer is prohibited from making any repairs until after closing. However, FHA rehab loans are available that allow qualified buyers to finance the purchase and the repairs into a single mortgage, and the repairs can be completed after closing. These rehab loans can be used for many foreclosure properties, regardless whether they are HUD homes. There is also a very special FHA program available only for HUD homes that allows minor repairs (up to $5000) to be escrowed into the purchase and completed after closing, without the extra expense and hassles of a rehab loan - and instead of FHA's normal minimum down payment of 3.5%, only a hundred bucks is required (yes, just $100). This is a great program, ideal for first-time buyers and anyone else who wants to buy a primary residence without putting down a lot of their own money.

Buying a HUD home is much better than buying bank-owned properties because you know the appraised value up front (HUD supplies a valid appraisal), you know the nature and estimated cost of any required repairs up front, the repairs can be financed into the purchase and completed after closing, HUD's paperwork is even-handed (unlike the one-sided contract addendums commonly required with bank-owned properties), and the bidding process is crystal clear. If you have any questions or would like to discuss this further, please feel free to contact me: James Wheeler, 813-600-3428. I'm an experienced loan officer at an FHA-approved lender, and I firmly support HUD's mission of promoting homeownership.
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John Gitre, Agent, Canton, OH
Sat Jan 3, 2009
Homehunter, Q: Are you obligated to make repairs in a certain time frame? A: depends on the municpality. Q: do you have to use their contractors? A: No Q: Are they overzealous in identifying problems? A: It depends on the property. What is a lot of work for you may be not so for another buyer. Q: Advantages? A: HUD homes for the first 10 days are for sale to owner/occupiers. If they do not receive an acceptable bid, on the 11th day the bidding is open to everyone with the bids opened by the seller at or around 4p.m. Q: Is the paperwork had? A: I don't think so. Q: Cash? A: Buying in cash just allows for a quicker close. HUD is looking at what offer will net them the most with the least amount of aggravation. Q: Incentives? A: HUD does at times provide an incentive to brokers as well as to buyers. It depends on the property.
HUD has a number of companies handel the sale of their homes. In Michigan it is overseen by MCBREO. If you go to their website you will find a lot of information about the homes that HUD has for sale. You will also find a FAQ page that may help you.
If you are looking fro a HUD home in Southeastern Michigan, and I can be of any help, please contact me. Thank you, John
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Homehunter, Home Buyer, Brooklyn, NY
Sat Jan 3, 2009
I am not referring to a specific property. I am asking in general. Condition issues can range from plumbing, roof, HVAC issues to a cracked porch, missing storm door. Some seem like relative non-issues for a homeowner. That is why I'm asking whether all of these need addressing as part of the purchase agreement and whether one has to use govt.-approved vendors to do the work. Thanks.
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Derek Bauer, Agent, South Lyon, MI
Sat Jan 3, 2009
What, "condition issues," are you referring to? I just closed on a HUD house that had lead-based paint issues that were remedied prior to closing. Your answer lies in whether or not the municipality the property is in requires a certificate of occupancy, or not.

Please let us know where the property is located, and what the property issues are.
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