The 2022 Investor’s Guide to Buying Properties on HUDHomeStore

If you’ve decided that you want to invest in real estate, buying your investment property from the HUDHomeStore website is a viable option.

Table of Contents

1. What Does a HUD Home Mean?
2. Is a HUD Home a Good Idea for Investment?
3. Steps to Buying a HUDHomeStore Home
4. Financing a HUDHomeStore Home
5. Key Takeaways

For starters, the US Department of Housing and Urban Development (HUD) oversees several national programs for Americans. However, it doesn’t provide mortgage financing for investors who wish to buy properties.

If you think you’re ready to invest in real estate in 2022 and have done enough research online, you’ve probably heard of the HUDHomeStore website. However, as soon as you visit the website, you realize it’s much different from other online real estate platforms. 

How does the HUDHomeStore bidding work? Can you get to see the home before making an offer? How do you even start?

In today’s article, we seek to look at the process of buying a home on the HUDHomeStore site and some tips to make the process straightforward. Let’s start with the basics:

What Does a HUD Home Mean?

The HUD abbreviation comes from the US Department of Housing and Urban Development. The Federal Housing Administration (FHA) is under the HUD. While it doesn’t provide mortgages or lending of any kind, it offers federal mortgage insurance. 

In short, the FHA provides guarantees for certain mortgage loans by providing mortgage insurance for borrowers who may not qualify for conventional loans. It’s a guarantee that the mortgage loan will be paid off even if the borrower risks defaulting.

With the mortgage insurance from FHA, the lender can service more borrowers, since they’re protected. FHA loans may be more accessible to people without healthy credit histories or with lower down payments since they don’t qualify for traditional loans.

So, what happens if a borrower defaults on the mortgage?

If an FHA lender forecloses a home, the lender claims the mortgage balance from the FHA. The FHA pays the balance and the HUD will take ownership of the property. The HUD then sells the home at a discount.

Is a HUD Home a Good Idea for Investment?

To answer the question, we need to break down the following section into the pros and cons of investing in HUD homes so you can decide.

Advantages of Investing in a Home on HUDHomeStore

Here are some of the advantages of buying a home on HUDHomeStore:

Fairly Affordable

When individual sellers are selling their homes, they’re looking to make a profit. It’s not the case with HUD homes. Once a home is foreclosed, they carry out an appraisal to arrive at the home’s fair market value. The selling price is set within the range of this value.

If a home is in need of repairs, which most do, the repair amount is deducted from the selling price. The process makes it easier for investors to carry on with HUD home buying since they don’t need to get quotations from contractors and negotiate with the home seller.

Related: 6 Ways to Find Pre Foreclosure Homes in 2022

Accessibility 

Foreclosures are quite common at any time of the year. Also, of all mortgage loans in the country, FHA loans are about 20%. It means that many of the foreclosed properties end up in the HUD program.

As such, HUD is an excellent source for investors looking to buy rental properties in 2022. Luckily, the HUDHomeStore website makes the properties even more accessible. You can find up-to-date listings and search for properties based on several criteria, such as price and number of bedrooms and bathrooms.

There are also many real estate brokers approved by the HUD who can help you find your ideal home on HUD.

Effortless Home Buying Process

As we’ve already mentioned, HUD properties are foreclosed homes since the owners aren’t able to pay off the mortgage. The HUD is usually looking to sell these homes fast to recover the money it used to pay off the mortgage balance.

The HUD accepts bids for the properties. Usually, the highest bidder gets the home. You don’t need to worry about other things other than making their highest bid. If you can, then you’re almost assured of getting the home.

Less Competition

Since the homes on the HUDHomeStore website are foreclosed properties, they’re not usually in the best condition. They’re less desirable to many buyers, especially those looking for homes to make their primary residences.

Additionally, other home buyers are simply turned off by HUD homes. It usually presents a great opportunity for savvy real estate investors who want to purchase rental properties since there’s less competition to deal with. 

If you don’t mind spending some money on repairs, you can purchase a HUD home and make rental profits in the long term.

Disadvantages of Investing in HUD Homes

Now let’s look at the downsides of buying a home on the HUDHomeStore.

Shady Home Histories

It’s not uncommon to find HUD homes with sketchy histories. Some might’ve been used for the production of drugs or storing contraband goods. Some investors who bought foreclosed properties under the HUD program in the past found that the homes were previously used as meth labs.

If you want to use the HUD home as a rental, it may be a huge problem. As an investor, always get a home inspection done before making an offer so that your investment property doesn’t bring any problems to your future tenants.

You Can’t Make an Offer Immediately

When it comes to the speed at which investors can offer a bid for a HUD home, existing laws put the investors at a disadvantage. The regulations don’t allow investors to make bids on properties within 30 days after going up for sale.

In short, investors who want to buy the home for primary residence purposes have at least 30 days to think about their purchase. On the flip side, such a process makes it hard for investors to get HUD homes, especially if they’re based in highly competitive markets. 

As an investor, you can ensure that you have everything ready so that you can act quickly as soon as you’re allowed to make a bid.

You Have to Buy “As Is”

With properties sold by individual property owners and sellers, you can negotiate based on the repairs needed. However, it isn’t the case with HUDHomeStore homes since they are sold “as is.”

As a result, you should always account for the repair cost in your budget before making a bid for a HUD home. Home inspections can help you arrive at a figure that you’ll spend on the repairs. You can then use this to project the home’s after-repair value.

Remember, if you want to rent the house, it may make the process more complicated since you have to upgrade the property to a condition that appeals to the tenants. We recommend that you work with a real estate agent who understands the local market so that you can make a good investment. A good agent can also advise on the best investment strategy, such as fix and flip, and buy and hold.

Related: All You Need to Know About the Buy and Hold Strategy in Real Estate in 2022

Steps to Buying a HUDHomeStore Home

When a HUD property is put on the market, the Initial Listing Period commences. It refers to the period when the property becomes open for bidding and HUD accepts offers for the property. 

During the initial offering, HUD homes are available to buyers who wish to buy them as primary residences. Owner-occupants who make bids within the first 10 calendar days are given first priority. Other investors are considered if no owner-occupants make bids.

Step-By-Step Process of Buying a Home on hudhomestore.com

• Go to HUDHomeStore search and look for your ideal home. Alternatively, you can also contact your local real estate agent or the HUD management in your state.
• Conduct a visual inspection of the property to ensure there are no obvious issues with the home.
• If you plan to get a mortgage to acquire the home, ensure you get pre-approval.
• Get a HUD-approved real estate broker to put in a bid for the home on your behalf. It is a requirement. The broker will notify you about the theHUDHomeStore bid results. If you’ve been accepted, they’ll help you organize and submit your sales documents. They’re also there to provide guidance and answer questions throughout the entire process.
• Once your offer has been accepted, request an official home inspection. Ensure that the contract allows you to back out if any major defects are found in the home.
• Have your sales documents ready and submit them within two days after the acceptance of your offer.
• Close on the loan before the settlement date provided by the HUD broker. The settlement date is typically 30 days to 60 days after the offer acceptance date. 

HUDHomeStore brokers are paid a market-standard commission fee for facilitating the sale of the property. The selling agent must have specific clauses in the contract stating that the HUD will pay their commission.

If you follow the above process, you’ll have successfully acquired your HUDHomeStore property. 

Mashvisor Property Calculator

Are you looking for a way to know how profitable your HUD investment will be? Mashvisor’s investment property calculator lets you estimate your investment’s return on investment metrics, such as cash on cash return and cap rate. You can also project the estimated monthly rental income for any property in the US housing market. It is the best tool to use whether you’re investing in real estate actively or looking to generate passive income.

Book a demo with us to see how our tools can help you in your investing journey and find out the best place to buy rental property.

Financing a HUDHomeStore Home

There’s a common misconception that HUD offers financing for homes. HUD itself doesn’t finance homes. They also don’t accept financing contingencies for properties. It means that you either need to pay cash for the home or apply for a mortgage. If you go for the latter, your loan must be approved before you make an offer. 

That said, there are several ways to finance a home on the HUDHomeStore site. They include: 

FHA Financing

As we’ve already mentioned, an FHA loan is a type of financing facilitated by the Federal Housing Administration (FHA). FHA doesn’t provide the loan in itself but guarantees the mortgage loan. It offers insurance for the mortgage lender in case the borrower defaults on the mortgage.

Luckily, you can get an FHA loan to purchase your HUD property. Such loans offer low down payments, as you can secure the home for as little as 3.5% of the selling price.

As an investor who wants to secure FHA financing, you can only use it to buy an insured HUD home with repairs worth less than $5,000. 

If the property needs repairs worth more than $5,000, you can use a limited 203(k) mortgage to buy the HUD home. The financing option allows investors to combine the repair costs of a single-family home into their mortgage, together with the purchase costs. The repair costs can go up to $35,000. If the costs exceed the said amount, the borrower will have to pay for the balance out of their own pocket.

Other Financing Options

While many owner-occupants will go for FHA financing, investors are more likely to pay cash for HUD properties. However, not all investors have enough cash to pay cash for the property and also don’t qualify for FHA financing. 

Here are the available options for such investors:

• Hard Money Loans: An investor can get a hard money loan with a high interest for the short term with the main goal of closing the property and then securing permanent financing later on. This option will work when you’re running out of time.
• HELOC: You can take a Home Equity Line Of Credit (HELOC) loan from another property you own and invest it into the HUD property. However, check with your lender to ascertain whether they allow it.
• Conventional Mortgage: This option is typically used for properties that only need cosmetic work. The loan duration can go for as long as 30 years with a down payment of 10%.

The bottom line is that when it comes to financing, purchasing a HUD home is in no way different from purchasing any other home. You can compare different lenders and their terms to find financing that suits your needs.

Ensure you have the financing in order before submitting an offer. If your offer is accepted and you fail to close on the home, you can lose your earnest money deposit. Though there are certain exceptions to the said rule, such as the death or illness of a family member, talk to your real estate agent before submitting an offer.

Related: A Guide to Creative Financing for Real Estate Investors

Key Takeaways

Investing in a home on HUDHomeStore can be an uphill task, yet rewarding in the end. Don’t let the process intimidate you. Instead, have a trusted real estate agent by your side to walk with you along the entire journey. You can purchase a good property at a rate below the market value, fix and flip it, or fix it and rent it out.

Now that you know what buying a HUD property entails, use Mashvisor’s tools for your real estate investments.

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