Real estate plays a big role in our lives. It comes as no shock to anyone that it provides a certain amount of comfort when you close your door at night knowing that you own the property you reside in. Real estate investors have learned that no real estate opportunity should be left unused. They have found a way to venture real estate into the stock market through REITs and found a way to enjoy a vacation home while enjoying the perks of owning a rental property through utilizing vacation home rentals. It only makes sense that foreclosed homes and HUD homes have made it onto real estate investors’ agendas. Real estate investors have found HUD homes for sale to be lucrative to pursue. The question remains whether young real estate investors should look for HUD homes for sale or not.
What are HUD homes for sale?
HUD is short for the U.S. Department of Housing and Urban Development. HUD homes happen when a property is purchased with a loan secured by the FHA (Federal Housing Association). If the owner of the property defaults and the property falls into foreclosure, the lending institution can file a claim on the mortgaged property, in which the FHA pays the insurance claim and takes ownership of the property. This is the process that produces HUD homes for sale.
What are the advantages of HUD Homes for sale?
- Easy to access the properties on HUD’s website. An investor or a real estate agent can view all the properties in the local housing market to place bids.
- The process is longer than buying other types of properties which makes it unattractive for some real estate investors. This gives you less competition to worry about.
- Fair market values for properties are according to local prices. You will find good deals on properties that would be listed for much higher in better circumstances.
- Repair report is provided for the homebuyer; this allows investors to factor in renovations and repair costs when bidding on a property.
What are the disadvantages of HUD homes for sale?
- The process of buying HUD homes is not concrete. HUD always updates their terms and processes when it comes to the actual purchase.
- The real estate investor or anyone who’s interested in buying must secure the financing for the property as it does not offer aperients.
- For real estate investors, finding a HUD home can be an issue as owner-occupants will get the first pick. At the end of the day, not many properties are left for real estate investors.
Related: HUD homes: What You Need to Know Before Buying One.
What is the process when buying HUD homes for sale?
Choosing the type of HUD homes that works best for you
There are two types of HUD homes for sale: insured and uninsured. The difference between insured and uninsured HUD homes can be simplified by two categories:
- The condition the home is in
- Priority between owner-occupants and real estate investors
Uninsured HUD homes require more repairs than insured ones, and insured HUD homes are targeted for owner-occupants while uninsured ones are best suited for real estate investors.
Search for HUD homes in the database
The most popular method for finding HUD homes for sale available in the real estate market is using HUD’s official website. Some real estate investors may choose to hire a realtor at this step to find the best real estate investments for them.
HUD’s website offers an easy to use search engine to navigate through the vast amount of properties. You can define the state, price limit, bedroom count, bathroom count, and even a specific zip code.
If a certain property catches your attention and you wish to learn more about it, you can check all kinds of information on the website, including insurance and mortgage requirements. It is highly recommended to conduct a simple online investment property analysis and a comparative market analysis on the said property to ensure you are getting a good deal. Mashvisor offers an encompassing rental property calculator that real estate investors and homebuyers can use to keep their minds at ease.
Find the right financing
Assuming you have found a property that you like, and you have the real estate comps, it’s time to find financing for your property. It’s important to find the right method to finance a property for both investment properties and owner-occupant properties.
Most successful real estate investors who are interested in HUD homes secure the financing before hiring a HUD-approved realtor. Interested buyers must keep in mind that securing the financing can take some time while HUD homes are controlled by a strict schedule. It’s important to know that HUD does not provide financing for HUD homes. Instead, interested buyers can obtain FHA financing, or a regular mortgage from a lending bank, or even pay for it in a sum of cash. Additionally, real estate investors can treat HUD homes for sale as any other investment property and use a home equity line of credit on another property to purchase it.
Related: 4 Investment Property Financing Methods.
Use a HUD-approved realtor to purchase
Finding a HUD-approved realtor to help you in finalizing the sale can be done either through your regular real estate agent’s office, if they offer such a service, or through HUD’s website as they offer a list of preapproved realtors.
View the property
If you found a realtor that has worked with HUD homes for sale before, the realtor can set an appointment for you to view the property and determine if you wish to go through with the purchase. Whether you are looking for HUD homes for sale to add investment properties to your investment portfolio or looking for a home for your family, HUD will arrange to have a contractor present while you are viewing the property to give you an estimation of what needs to be done to get the property in functioning condition. This will also be useful to you as you calculate your bid on the property.
Place your bid
Unlike other websites, the HUD-approved realtor will be the one placing the bid on your behalf. After logging onto the website, the realtor can place the bid and send the refundable deposit (can range from $500-$2,000) which locks your bid in.
Hire an appraiser
Assuming that your bid won, the first thing you must do is celebrate! Just like buying an investment property on the market, the step that follows is conducting a full inspection and appraisal. Note that HUD will most likely not recover your deposit if you choose not to proceed with the purchase.
Related: Should I Get a Real Estate Market Analysis or Home Appraisal?
Closing on HUD homes for sale
Once your realtor sends the contract to HUD and they approve it, the process will need up to 30 days for closing on the property. Keep in mind that in HUD properties, it’s the buyer’s responsibility to find a title company to issue title insurance to the property.
Real estate investors may choose to utilize HUD homes in their investment strategies as rental properties or second homes. It’s important to keep in mind that the process can be lengthy and requires patience. The main attraction remains that you can buy HUD homes for less than their market value. If you have any more insights on purchasing HUD properties, please share them with us in the comments section.
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