Understanding HUD Foreclosures

HUD foreclosures are the best properties to buy when you want to earn huge profits. However, a lot of would-be investors do not totally understand what HUD foreclosures are. This article will help you familiarize a few things about HUD foreclosures.

HUD foreclosures are a HUD foreclosures are the best properties for investors to buy to earn huge profits

Photo Courtesy of Jeffery Turner via Flickr

HUD is not a lender but the administrative agency that oversees and is responsible for a number of federal housing agencies and programs including the Federal Housing Administration (FHA), which insures home loans in specific qualifying areas of the country. HUD (Housing and Urban Development) was created under the Housing and Urban Development Act of 1965 with a mission to create strong, sustainable, inclusive communities and quality affordable homes for all.

HUD foreclosures are properties that were insured by the government. When homeowners default on their loans because of some mitigating circumstances such as divorce, death in the family or unemployment, the government pays the balance of the mortgage loans to the lender or bank, and the property will then be turned over to the HUD, thus the term “HUD” homes.

HUD foreclosed homes for sale are placed on the market are reserved for owner-occupant buyers for the first 5 days, which means that those who plan to live in the HUD-owned property will have the chance to buy the property. After which, all unsold HUD foreclosures will be opened to all interested buyers, including real estate investors.

What Are The Benefits of Buying HUD Foreclosures?

Some benefits to buying HUD homes include:

  • Lets you save. You will be able to save thousands because HUD pays up to 5 percent of the closing costs.
  • Lets you sit back and relax. A real estate broker will prepare and submit your offer and deposit for you without charging you.
  • You can move in quickly if you buy a HUD home eligible for FHA-insured mortgage because it has already been appraised.
  • HUD also helps the real estate brokers by paying them commissions for every sale.
  • HUD foreclosure homes may be eligible for repair loans.

Who Are Eligible To Buy HUD Foreclosures?

There are five buyer types identified by HUD that are eligible to purchase HUD-owned homes. These are:

1. Owner Occupant

These are individuals who have not purchased a HUD property in the past two years. Owner occupants are prioritized above Nonprofits and Government agencies in the bid-selection process and can bid on homes in the Exclusive or Extended periods.

2. Investors

Eligible investors can bid on HUD foreclosures only in the Extended period. They are ranked below other types of bidders in the bid-selection process.

3. Good Neighbor Next Door (GNND)

Good Neighbor Next Door (GNND) buyers can bid on single-unit homes in a Revitalization Area during the Lottery phase. During the Lottery phase, GNND buyers are given preference over Government Agencies and Nonprofits in the selection of a bid-winner and get a 50% discount off the HUD appraised value. After the Lottery phase, GNND buyers are no longer eligible for the 50% discount, For instance, a GNND buyer can purchase a $100,000-worth home for $50,000 in the Lottery phase, as long as they occupy the home as their personal residence for the required 3-year occupancy period.

4. Nonprofit Organizations

Nonprofit organizations, having established their eligibility, can bid on homes in Lottery, Exclusive, and Extended phases as long as they are in approved purchase areas. However, they cannot bid for Dollar homes.

As to their rank in the bid-selection process, Nonprofit buyers rank below Government Agencies in (Lottery phase), and above Government Agencies for Exclusive and Extended listings. Furthermore, if the property is in the Lottery phase, the property must be uninsured.

5. Government Agencies

Approved government agencies can bid on homes in Lottery, Exclusive, and Extended phases, including Dollar homes, provided they are in approved purchase areas. If the property is in the Lottery phase, the home must be uninsured.

Note that certain conditions must be met to determine the eligibility of a buyer to bid on HUD foreclosures. Furthermore, only registered bidders can make offers on properties. Homebuyers are required to use a registered selling broker or selling agent to make an offer on their behalf.

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