I get a lot of questions about this HUD home for half price program. In a nutshell, HUD allows certain occupational groups to purchase designated properties in a true computerized lottery. There is no negotiation with HUD for these properties and only a few come up each week. When they do, they can represent a true bargain for certain qualified individuals. They can save 50% off the listed price of the property. This is HUD's Good Neighbor Next Door Program.
To participate, they first need to financially qualify for the amount of the purchase. They must use a HUD registered broker or agent to prepare the paperwork and submit the offer. If their bid is acknowledged as the winning offer, they will need to obtain a pair of FHA loans for half the amount of the full list price. One is a first mortgage which will be paid like any other, and the second is "silent" meaning there is no principle or interest on it as long you fulfill the three year occupancy requirement. Paying a loan on a principle at half the price of the property is a real deal, if you happen to win HUD's lottery. Ok, so who are these qualified individuals eligible to get in on this deal?
Participation:
Law Enforcement
You may participate in the Good Neighbor Next Door program as a law enforcement officer if you are employed full-time by a law enforcement agency of the federal government, a state, a unit of general local government, or an Indian tribal government; and, in carrying out such full-time employment, you are sworn to uphold, and make arrests for violations of, federal, state, tribal, county, township, or municipal laws.
Teachers
You may participate in the Good Neighbor Next Door program as a Teacher if you are employed as a full-time teacher by a state-accredited public school or private school that provides direct services to students in grades pre-kindergarten through 12. In addition, the public or private school where you are employed as a teacher must serve students from the area where the home you are purchasing is located in the normal course of business.
Firefighter/Emergency Medical Technicians
You may participate in the Good Neighbor Next Door program as a Firefighter/Emergency Medical Technician if you are employed full-time as a firefighter or emergency medical technician by a fire department or emergency medical services responder unit of the federal government, a state, unit of general local government, or an Indian tribal government serving the area where the home is located.
Ok, so what's the hitch? Well, you must be one of these qualified people to make an offer on these designated properties. Not all the properties are in move-in condition. They may need substantial fix-up. They may not be in the best of neighborhoods... One of HUD's stated goals for the program is to promote the stabilization and revitalization of the neighborhoods where the properties are located, by helping buyers who can become neighborhood mentors, role models and positive examples in the community. You must commit to live in the property for three years, occupying it as your sole residence. You can find out more about this program at www.buyhudva.com. If there's anyone out there who won a GNND property and wishes to share the experience with us, including the good, the bad and even the ugly, please do.
-- Mike Duermyer
Tuesday, August 10, 2010
Monday, August 2, 2010
Investors are back!
For the past few years, it's been tough for investors of HUD and REO properties. HUD provides priority to occupant sales during the initial bidding period, so even if an investor were to outbid an owner-occupant's offer, the occupant would be awarded the property. The purpose according to HUD is that this provides for community stabilization. The assumption is that investment properties often wind up with renters degrading neighborhoods. However, there is a need for all types of housing, including rentals. If investors can sell the property, they usually do. So I am not convinced of HUD's argument. These days, few neighborhoods seem stable.
The lower priority status HUD assigns to investors is not the only stumbling block to their success, although I have never heard an investor complain about this. Besides, an investor can purchase bank-owned properties instead, with no such restrictions. Investor-owned properties no longer need the 90 day "seasoning" in order for their buyers to obtain an FHA loan to purchase the property. That's good news. But the days of double-closing flips seem to be gone. In addition, most lenders are not allowing home equity loans and refinancing for investors immediately after fix-up. In the past, the equity from one property could be quickly parlayed into the investment for the next, a get-rich-quick strategy for many investors. It is hard to fault anyone playing that game, since it was well within the law to do so, and a well known strategy promoted by many motivational business speakers.
It is still a tough market, no doubt about it. But at least in the case of the DFW market, HUD investors seem to have risen from the dust. Of today's 66 HUD properties shown on our site as sold, half were sold to investors. This is a growing trend that seems to have started since April. Coincidentally, that is when the stimulus recovery funds for owner-occupant home purchases ran out. Apparently it did have an affect, pulling in residential sales that otherwise may have been put off. Now that the tax credit is history, we see that residential occupant sales are fewer and investors are taking advantage of that. And being able to hold ten properties again under financing, rather than only three helps alot, especially in markets where homes are on the market for longer periods. Hopefully, reason will prevail to allow capital flow for these entrepreneurs and small business owners, some who do this because the economy did away with their previous job. Good for them! Are there any investors out there with an opinion? Do you see things looking up for you?
The lower priority status HUD assigns to investors is not the only stumbling block to their success, although I have never heard an investor complain about this. Besides, an investor can purchase bank-owned properties instead, with no such restrictions. Investor-owned properties no longer need the 90 day "seasoning" in order for their buyers to obtain an FHA loan to purchase the property. That's good news. But the days of double-closing flips seem to be gone. In addition, most lenders are not allowing home equity loans and refinancing for investors immediately after fix-up. In the past, the equity from one property could be quickly parlayed into the investment for the next, a get-rich-quick strategy for many investors. It is hard to fault anyone playing that game, since it was well within the law to do so, and a well known strategy promoted by many motivational business speakers.
It is still a tough market, no doubt about it. But at least in the case of the DFW market, HUD investors seem to have risen from the dust. Of today's 66 HUD properties shown on our site as sold, half were sold to investors. This is a growing trend that seems to have started since April. Coincidentally, that is when the stimulus recovery funds for owner-occupant home purchases ran out. Apparently it did have an affect, pulling in residential sales that otherwise may have been put off. Now that the tax credit is history, we see that residential occupant sales are fewer and investors are taking advantage of that. And being able to hold ten properties again under financing, rather than only three helps alot, especially in markets where homes are on the market for longer periods. Hopefully, reason will prevail to allow capital flow for these entrepreneurs and small business owners, some who do this because the economy did away with their previous job. Good for them! Are there any investors out there with an opinion? Do you see things looking up for you?
What's a HUD home?
A "HUD Home" is a property owned by HUD. The previous owner failed to make the required payments to the lender, so the lender foreclosed. The previous owner took out an FHA (a HUD agency) loan to finance the property. These types of loans are "insured" by the government, so when the loan fails, HUD pays the lender and takes ownership of the property and put the house up for sale.
Should you buy a HUD home? Some say to steer clear, due to the fact that these homes are sold "AS IS," and HUD will not "negotiate" repairs. Not all HUD properties are in bad shape. Some may be move-in ready, or need just paint and/or carpet. Some need more work. I've walked through hundreds of HUD homes, and as Forest Gump said about a box of chocolates, you never know what you are going to get. True of any home, anywhere I might add.
Generally, in the regular market, sellers "may" negotiate repairs by reducing the price of the property. In the regular market, a seller may have years of deferred maintenance or other issues that may not be disclosed. That's why home inspections are so important, no matter who you are buying from. HUD inspects each property before it goes onto the market and prices it accordingly. It is known as the "AS IS" value.
However, HUD allows for a repair escrow when the property is eligible for "insured" FHA 203b financing. This is when repairs are required to meet FHA requirements amounting to more than zero but less than $5500. In this scenario, if you want an FHA loan, you would have to have the repairs done within your lender's guidelines and they would reimburse you from an escrow account after they send someone out to confirm completion of repairs. The repair escrow paid to you will be placed into your loan. It is not included in your offer amount, and does not impact on the amount of loan you are qualified for. It also has no bearing in selecting a winning bid. Currently, FHA 203b loans require a down payment of only $100 for HUD properties. That's a bargain.
Some HUD properties are in pretty bad shape, not unlike some properties owned by other sellers. If a property can not come up to FHA standards with the $5500 allowable in a repair escrow 203b loan, the property is FHA "uninsured." For these properties, FHA has a 203k loan, which will allow you to do more extensive repairs to get them up to 203b "insurable" status. To obtain a 203k loan, you have the total amount for repairs to meet FHA 203b requirements estimated, and then you must qualify for a loan in that amount.
So if you see a run down HUD property in a location that is perfect for you, don't discount the 203k option. This is HUD's way of providing fix-up loans on their properties and may be the ticket for you. Have your lending professional explain this option if it fits your situation. That diamond in the rough may just need an appropriate amount of polishing to be the jewel you have always dreamed of.
Should you buy a HUD home? Some say to steer clear, due to the fact that these homes are sold "AS IS," and HUD will not "negotiate" repairs. Not all HUD properties are in bad shape. Some may be move-in ready, or need just paint and/or carpet. Some need more work. I've walked through hundreds of HUD homes, and as Forest Gump said about a box of chocolates, you never know what you are going to get. True of any home, anywhere I might add.
Generally, in the regular market, sellers "may" negotiate repairs by reducing the price of the property. In the regular market, a seller may have years of deferred maintenance or other issues that may not be disclosed. That's why home inspections are so important, no matter who you are buying from. HUD inspects each property before it goes onto the market and prices it accordingly. It is known as the "AS IS" value.
However, HUD allows for a repair escrow when the property is eligible for "insured" FHA 203b financing. This is when repairs are required to meet FHA requirements amounting to more than zero but less than $5500. In this scenario, if you want an FHA loan, you would have to have the repairs done within your lender's guidelines and they would reimburse you from an escrow account after they send someone out to confirm completion of repairs. The repair escrow paid to you will be placed into your loan. It is not included in your offer amount, and does not impact on the amount of loan you are qualified for. It also has no bearing in selecting a winning bid. Currently, FHA 203b loans require a down payment of only $100 for HUD properties. That's a bargain.
Some HUD properties are in pretty bad shape, not unlike some properties owned by other sellers. If a property can not come up to FHA standards with the $5500 allowable in a repair escrow 203b loan, the property is FHA "uninsured." For these properties, FHA has a 203k loan, which will allow you to do more extensive repairs to get them up to 203b "insurable" status. To obtain a 203k loan, you have the total amount for repairs to meet FHA 203b requirements estimated, and then you must qualify for a loan in that amount.
So if you see a run down HUD property in a location that is perfect for you, don't discount the 203k option. This is HUD's way of providing fix-up loans on their properties and may be the ticket for you. Have your lending professional explain this option if it fits your situation. That diamond in the rough may just need an appropriate amount of polishing to be the jewel you have always dreamed of.
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