| These days HUD foreclosures are everywhere. While | | | | labeled "uninsurable". These homes represent the |
| this is bad news for the economy, this can be great | | | | greatest opportunity, often with 30-40% discounts to |
| news for you, because HUD homes represent some | | | | the AS-IS value of the property, as these deals are |
| of the best deals on the market, in many cases at | | | | usually available only to cash buyers. This is because |
| "pennies on the dollar" prices. | | | | you will face a Catch-22 if you attempt to use a |
| It is easy to get excited when you are looking at the | | | | traditional purchase loan to buy the property: the bank |
| low prices of HUD listings, but you need to be aware | | | | won't lend you the money until the required repairs are |
| of some pitfalls you may face. One of the details you | | | | complete, and you aren't allowed to start repairs until |
| need to pay close attention to when purchasing a HUD | | | | the house has been purchased. |
| home either as a primary residence or investment | | | | This is where the FHA 203(k) Home Renovation Loan |
| property is the FHA Insurability. HUD homes are clearly | | | | Program becomes very useful. |
| labeled as Insurable, Insurable with Repair Escrow, or | | | | The FHA 203k Renovation Loan offers borrowers the |
| Uninsurable, and this will determine what type of loan | | | | ability to finance most repairs and improvements on a |
| you must use to get them. | | | | property, even allowing thousands of dollars for the |
| Homes labeled "insurable" indicate that nothing major is | | | | purchase and installation of large appliances. The FHA |
| wrong with the property, and the home is more or less | | | | renovation loan amount is based on the |
| move-in ready. No muss, no fuss. These are the first | | | | AFTER-REPAIR value, minus your 3.5% down |
| HUD homes every other buyer wants to look at, and | | | | payment. The eligible improvements allowed on FHA |
| the first homes most HUD-approved real estate | | | | 203(k) loans are numerous, and many clients are |
| agents want to sell you. | | | | pleasantly surprised at just how useful this loan can be. |
| Note: while these "insurable" homes are good deals, | | | | With the right improvements, you can create a really |
| you may face stiff competition from other | | | | great home with more than 50% equity the day you |
| homebuyers and novice investors. If you need to use | | | | move in. |
| financing, FHA guidelines will not allow you to borrow | | | | Note: as with the repair escrow program, your |
| more than the HUD asking price. This means you will | | | | greatest obstacle will be finding a lender willing to make |
| have to come up with cash out of pocket if you want | | | | 203(k) renovation loans. Most banks do not want the |
| to beat a competitor offering more than the asking | | | | administrative burden of managing the escrow |
| price. So much for your small down payment! | | | | disbursements after closing, nor do they want to take |
| However, if you don't make any offers, you will lose | | | | the additional risk that you will fulfill your obligations to |
| 100% of the bids, so go ahead and throw in your hat | | | | repair the property and bring it to its improved value |
| for the right properties. | | | | after closing. Be persistent in your search, though, and |
| Homes with less than $5,000 in required repairs are | | | | you will be greatly rewarded with one of the banking |
| classified as "insurable with repair escrow". Other | | | | industry's best-kept secrets. |
| buyers are not as eager to bid on properties in need | | | | Another sub-program from the FHA that can be used |
| of work, which means less competition and deeper | | | | in combination with any of the programs mentioned |
| discounts for you. Also, many people are unaware that | | | | above is the 100 Dollar Down Program. FHA will waive |
| the traditional FHA 203(b) Loan Program will allow you | | | | the required minimum down payment of 3.5% in favor |
| to finance these repairs into your loan, instead of | | | | of a measly $100 when you make a full price offer on |
| paying them out of pocket, via a 203(b) Repair | | | | any HUD-owned foreclosure. HUD will pay up to 3% |
| Escrow. At settlement your lender will place the repair | | | | of the sales price toward closing costs, plus most fees |
| money in a set-aside account for you to make the | | | | for the title work and the appraisal. Your earnest |
| necessary improvements after the loan funds. | | | | money deposit is either refunded at closing or credited |
| Note: while this seems straightforward, you must make | | | | toward your closing costs. |
| sure that your lender will allow repair escrows before | | | | Don't let the news media scare you into indecision! |
| you begin the loan process. Only a handful of lenders | | | | Savvy home buyers are solidifying their family's future |
| participate in the repair escrow sub-program due to | | | | and personal wealth with the HUD deals available in |
| additional risk and administrative burden. Find this out | | | | this market, even if they have little or no money |
| before you place your bid, or you could find yourself | | | | available for a down payment. Understanding FHA |
| without a loan, without a home, and without your | | | | insurability as it relates to your financing will help you |
| earnest money deposit. | | | | avoid obstacles and take advantage of the most |
| HUD homes with over $5000 in required repairs are | | | | generous loan programs ever made available. |