With all the HUD foreclosures in the area, there have been multiple phone calls from folks who are not familiar with buying foreclosed properties. In my continual quest to provide you with information, I hope that you find the following helpful:
To find foreclosed properties:
(HUD homes only)
www.homesales.gov(Consolidated listing of foreclosures available from HUD, VA, and USDA)
Helpful HUD Tips:
THREE TYPES OF HUD HOMES
An independent FHA-approved appraisal and an inspection are generally completed without two weeks of acquisition of the property, and the reports are sent to the Regional Office. A Property Condition Report (PCR) is then listed and available in the bidding system for buyers and brokers to download.
Important: The PCR should not be used in place of an inspection performed by a licensed inspector.
A Disposition Plan is determined, and the house is initially listed at the appraised value, according to the FHA financing category that is appropriate, given the current condition of the property. It is important to understand the listing codes and how financing is affected.
Insurable (IN)- Properties listed in this category appear to meet FHA 203(b) financing requirements. No obvious repairs are necessary for HUD to insure an FHA loan to a qualified Purchaser.
Insurable with Repair Escrow (IE)- Properties listed in this category are eligible for a 203(b) FHA loan with required “minimum property standard” (MPS) repairs totaling less than $5000 to be made by the Purchaser, financed by the FHA lender. If a 203(b) FHA is the financing, the repair escrow must be use for the needed work specified in the listing. In completing the Sales Contract (HUD-9548), the escrow amount is NOT deducted from the net to HUD to derive the amount that will be entered on line #7, NOR is it added to line #3, the purchase price. There is a separate line in Item #4 for the repair escrow amount to be noted.
The lender making the new FHA 203 (b) loan establishes an escrow account for the amount of the repairs. The amount given with the listing includes a 10% contingency. After close of escrow, the lender will inspect work as it is completed on the house and distribute the repair monies as appropriate within ninety (90) days. The cost of the repairs are included in the loan amount and repaid by the borrower as part of the house payment. Any funds in the escrow account not used for the repairs will reduce the unpaid principal balance of the loan.
Note that the repair escrow only applies to FHA 203(b) financing. If non-FHA financing is used, or if a cash purchase is made for an IE property, the repair escrow does not apply.
Uninsurable (UI)- Properties listed UI, uninsurable, need more extensive repairs after close of escrow and are deemed not eligible for FHA mortgage insurance in their “as-is” condition. Cash, or other financing not involving FHA, is often used to purchase UI properties. However, a special acquisition and rehabilitation FHA loan program called 203(k) is frequently an excellent source of financing for homes in the owner-occupied category.
Note on FHA 203(k) Financing: UI properties are generally eligible for the FHA 203(k) loan program (most condos are excluded, unless specifically noted otherwise). Also, any IN or IE property may be purchased subject to 203(k) financing, instead of 203(b), if the house and the owner-occupant Purchaser’s credit justify making improvements in excess of $5,000. Through this program, their lender can provide funds for rehabilitation along with the purchase mortgage.
Did You Know? More HUD Home Tips
v There are currently 3000 Foreclosures in D/FW per month (that is 100 per day).
v FHA loans (when purchasing a HUD Home)- Can ONLY use the HUD appraisal. Do NOT bid above the listed price unless the buyer wants to pay the difference out of pocket.
v FHA Insured with Escrows- Need bids/Invoices prior to closing. Escrow repair $ is rolled into loan.
v NO DAPS. Can use FTHB programs, but not recommended! Trust me J
v VA- Watch about repairs. If VA appraisal calls for repairs, HUD will not allow them to be fixed prior to closing so your buyer is in a “Catch 22” situation.
v Conventional – Must have a new appraisal. Can ask original appraiser to do so, but will cost.
v Time Line of Purchasing and papers to the title company- 45 days max from time HUD signed on the contract. Lender must have papers at the title company 10 days at the title company
v Investors Buying Uninsured- Will lose earnest money if back out.
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