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BUYERS FAQ
General Questions
- What is a "HUD Home"?
- Who can buy a HUD Home?
- Is it true I can get a HUD Home for a dollar?
- If the HUD Home needs repairs, will HUD make
them?
- How do I buy a HUD home?
- How can I find out what HUD Homes are for
sale?
- How can I get a loan to buy a HUD Home?
- Can I buy a HUD Home as an investment?
- Are there any programs for Nonprofits and
Government Agencies?
- Are there any special programs for Officers
and Teachers?
- Are there any special programs for Local
Governments?
- When should I do a walk through inspection?
- What will my down payment be if I bid over
the asking price? Does the repair escrow
dollar amount shown with the listing include the additional
10% overage?
- What is the Section 203k Program?
- Can you tell me what rules a HUD approved
broker must follow when advertising HUD homes?
- Should a Walk-Through Inspection be performed
prior to closing?
- Will HUD provide termite treatment or repairs
if required by the lender on a conventional loan?
- What is the Repair with Escrow Program?
- When is the date of the next auction of HUD
homes?
- Do condos have a reduced down payment as
has been practice in the past?
- Is HMBI allowing Real Estate Brokers to conduct
open houses on HUD properties?
- If a property is listed as Insured with Escrow
(IE), can I get a conventional or VA loan and still have the
repairs done?
- How do I choose my Closing Agent?
- What does it mean when a property is "insured"?
Uninsured? Insured with Escrow?
- What is the earnest money deposit required
for this area?
- Are there any recent changes regarding earnest
money deposits?
A. A HUD Home is a property that was previously
financed with an FHA insured mortgage and where the owner has
defaulted on the loan. The lender, then, forecloses on the home.
FHA pays the lender what is owed; and the lender transfers ownership
of the home to FHA/HUD. Then, HUD sells it at market value.
A. Anyone who has the cash or can qualify for
a mortgage can buy a HUD Home.
A. No. HUD sells homes at market value - that
means that the price is set based on the price of similar homes
sold in the area.
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Q. If the HUD Home needs
repairs, will HUD make them?
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A. HUD Homes are sold "as-is," without
warranty. That means that HUD will not pay to correct any problems.
Buyers are encouraged to get the home professionally inspected.
Houses built before 1977 may have lead based paint, which can
cause harm to your family; so be sure to read about this hazard
and about what you would need to do to correct it.
A. HUD Homes are sold through Participating Real
Estate Agents.
Start by finding a HUD participating real estate agent. Your
real estate agent must submit your bid for you. The real estate
agent's commissions are usually paid by HUD.
A. Right here! The list of HUD Homes for sale
is updated daily. If you see one that interests you, contact
one of the HUD participating real estate agents in your area.
They can help you from there.
A. HUD does not make loans directly. You can
contact a HUD approved lender, who will take you through the
steps and actually make the loan.
A. Most HUD Homes are initially offered on a
priority basis to owner occupant purchasers (people who are
buying the home as their primary residence). Following the priority
period, unsold properties are then available to all buyers,
including investors.
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Q. Are there any programs
for Nonprofits and Government Agencies?
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A. HUD has a special sales program under which
approved nonprofit organizations and government agencies may
purchase properties at discounted prices for use in local housing
or homeless programs. Click here for more information on this
program.
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Q. Are there any special
programs for Officers and Teachers?
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A. HUD has a special sales program under which
approved Officers and Teachers (as defined by HUD) may purchase
properties at discounted prices in revitalization areas. Click
here for more information on this program.
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Q. Are there any special
programs for Local Governments?
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A. HUD has a special sales program under which
Local Governments may purchase certain properties at one dollar
($1.00). Click here for more information on this program.
A. All purchasers are strongly encouraged to
perform a walk through inspection at or near the date of your
contract acceptance and, again, immediately PRIOR to closing.
If a purchaser discovers a property condition that did not exist
at the time of sale they must immediately notify HUD's property
manager, HMBI, of the damage. The purchaser or agent should
complete the Property Damage Report and fax it to the appropriate
fax number listed on the form.
Reporting the damage does not guarantee the correction of the
problem that has been discovered. The lack of written documentation
describing property condition at contract acceptance, however,
will preclude consideration for repairs or price adjustments
in the event of subsequent damage. Each case will be looked
at independently and a determination will be made as to whether
the damage will be repaired (or not repaired) or, under some
circumstances, credits given at closing. The buyer assumes full
responsibility for the property and its condition on the date
of closing. Neither HUD nor HMBI assumes any responsibility,
and will make no settlement for damages reported to HUD after
the close of escrow. (See item #13.E of HUD Sales Contract).
Inspections are for the benefit of the buyer. Under no circumstances
shall this advice be construed as a warranty by HUD or HMBI
as to the condition of the properties.
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Q. What will my down payment
be if I bid over the asking price?
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A. Be advised that the purchaser must pay
cash for any overbid in excess of the sales price when using
FHA financing. The purchaser is still required to furnish
the 3% down in addition to the amount overbid. For example,
if a property is listed at $100,000 and the purchaser bids
$102,000, he/she is required to pay the 3% down ($3,000) plus
the overbid value ($2,000) for a total FHA down payment of
$5,000. When using conventional financing, the lender will
calculate the required down payment.
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Q. What is the procedure
for submitting an extension request? What if I need
a second extension?
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Effective May 14, 2001, all extension requests
must be submitted to the appropriate closing agent 5 days
prior to the expiration of the contract. A letter must accompany
the second extension request from the lender stating the purchaser
is able to close within the requested extension period.
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Q. Does the repair escrow
dollar amount shown with the listing include the additional
10% overage?
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A. It is important to note that the identified
amount for repair escrows listed on the website includes the
entire repairs amount plus the 10% overage. The entire stated
amount will be included in the purchaser's loan.
A. The Section 203k program is a program for
rehabilitation and repair of single family properties. The program
allows the borrower to get just one mortgage loan, at a long-term
fixed or adjustable rate, to finance or refinance both the acquisition
an the rehabilitation.
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Q. Can you tell me what
rules a HUD approved broker must follow when advertising
HUD homes?
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A. Brokers must follow the advertising guidelines
established by the Fair Housing Act. The Fair Housing Act prohibits
discrimination in housing for any of the following reasons:
Race or color, National origin, Religion, Gender, Familial status
(including children under the age of 18 living with parents
or legal custodians; pregnant women and people securing custody
of children under 18) or Handicap (Disability). The Equal Housing
Opportunity Logo must also be present on advertisements (to
the extent required by law).
In addition to the Fair Housing Guidelines, some additional
rules apply: A broker may not advertise in such a way that would
mislead buyers to believe they are the exclusive listing agent
of the seller or affiliated with HUD or HMBI; all advertisements
should include a reference to HUD; business cards or flyers
are not allowed to be placed in HUD properties; also, language
such as "distressed home" is not allowable. If these
rules are followed there usually will not be a problem advertising
HUD homes.
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Q. Should a Walk-Through
Inspection be performed prior to closing?
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A: All purchasers and agents are strongly
encouraged to perform a walk through inspection PRIOR to the
closing. If a purchaser discovers a property condition that
did not exist at the time of sale, they must immediately notify
HMBI of the damage. Reporting of the damage does not guarantee
the correction of the problem that has been discovered. Each
case will be looked at and a determination will be made as to
whether repairs will be made or whether the buyer will be given
the opportunity to cancel the sale. The buyer assumes full responsibility
for the property and its condition on the date of closing. HUD
and HMBI assume no responsibility, and will make no settlement,
for damages reported after the closing. (See item #13.E of HUD
Sales Contract)
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Q. Will HUD provide termite
treatment or repairs if required by the lender on a
conventional loan?
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A: No. HUD will only pay for termite treatment
or repairs if required by the lender on an FHA loan. If, however,
the buyer elects to change financing from FHA to a conventional
or cash product, HUD will not pay for the termite work. If the
buyer should switch financing to anything other than FHA, the
buyer will have to reimburse HUD the costs of those repairs.
A: The repair escrow program is offered when
a HUD property requires less than $5000 in repairs to meet the
intent of minimum property standards. A 10% coverage is also
calculated into the costs so the actual amount given on any
repair escrow can be as high as $5500. Minimum property standards
are defined as items that affect the habitability of the home.
Examples would be roofing, plumbing, electrical, mechanical,
bare flooring, etc.
At closing, the buyer must finance the HUD-designated repairs
into their mortgage. The buyer has 90 days from closing to hire
a contractor and complete the repairs. Upon completion and an
inspection by the lender, the lender will pay the invoices.
The lender is paid a fee by HUD at closing to manage the process.
If there are funds remaining after all invoices are paid, they
will be applied to the principle balance of the buyer's loan.
If the funds are not adequate to repair the property, the additional
cost is the buyer's responsibility. If the buyers do not complete
the repairs within the 90-day period after closing and no extensions
have been granted, the funds are applied to the principle balance
of the loan.
This program is available to both owner occupied and investor
purchasers, but is only applicable on a property being purchased
using a FHA 203b mortgage. If the buyer is seeking financing
other than FHA, the escrow repairs funds are not granted. As
of the new sales contract revised January 1999, these figures
appear on the contract but are not calculated in the net.
Additional information on the 203B repair with escrow program
can be found at the Mortgagee Letter 95-56.
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Q. When is the date of
the next auction of HUD homes?
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A: As of today no auctions are scheduled or anticipated.
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Q. Do condos have a reduced
down payment as has been practice in the past?
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A: Currently there are no programs with reduced
down payments but watch our Web site for future updates.
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Q. Is HMBI allowing Real
Estate Brokers to conduct open houses on HUD properties?
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A: At this time, HMBI has a "no open house"
policy.
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Q. If a property is listed
as Insured with Escrow (IE), can I get a conventional
or VA loan and still have the repairs done?
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A: The only way to have the repairs done
is with the FHA IE financing. Buyers are responsible for
all of their own repairs when using conventional financing.
A: Closing agents are assigned based on the location
of the property. If brokers do not know the appropriate
closing agent, please call the appropriate office for this information.
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Q. What does it mean when
a property is "insured"? Uninsured?
Insured with Escrow?
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A: An insured property qualifies for a
FHA 203b loan. To be eligible for FHA-insured financing,
a property must meet HUD's Minimum Property Standards (MPS)
based upon an appraisal. Certain properties may be insured with
conditions. The "insured with conditions" designation
will require certain checks/certifications to be completed
by the buyer or lender on the property prior to it being eligible
for FHA insurance. All conditions to a property's insurable
status will accompany the listing in the notes/comments section
of the listing. If necessary repairs or MPR items
are discovered during the checks, the lender should contact
our closing department to discuss alternatives to allow the
sale to close, including 203b Repair Escrow, 203k financing,
etc.. In these situations, sufficient documentation must
be provided from the lender to support the change of financing
An uninsured property has in excess of $5,000 in MPS repairs
and does not qualify for a FHA 203b loan. Conventional,
VA, Cash or 203k financing could be used.
The insured with escrow (repair escrow) program is offered when
a HUD property requires less than $5000 in repairs to meet the
intent of minimum property standards. A 10% overage is also
calculated into the costs so the actual amount given on any
repair escrow can be as high as $5500. Minimum property standards
are defined as items that affect the habitability of the home.
Examples would be roofing, plumbing, electrical, mechanical,
bare flooring, etc. At closing, the buyer must finance
the HUD-designated repairs into their mortgage. The buyer has
90 days from closing to hire a contractor and complete the repairs.
Upon completion and an inspection by the lender, the lender
will pay the invoices. HUD pays the lender at closing to manage
the process. If there are funds remaining after all invoices
are paid, they will be applied to the principle balance of the
buyer's loan. If the funds are not adequate to repair the property,
the additional cost is the buyer's responsibility. If the buyers
do not complete the repairs within the 90-day period after closing
and no extensions have been granted, the funds are applied to
the principle balance of the loan
This program is available to both owner occupied and investor
purchasers, but is only applicable on a property being purchased
using a FHA 203b mortgage. If the buyer is seeking financing
other the FHA, the escrow repairs funds are not granted. As
of the new sales contract revised January 1999, these figures
appear on the contract but are not calculated in the net.
Additional information on the 203B repair with escrow program
can be found at the Mortgagee Letter 95-56.
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Q. What is the earnest
money deposit required for this area?
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A. Effective April 19, 2002, the required deposit
will be $500.00 when the purchase price is $50,000.00 and under
and $1,000.00 when the purchase price is over $50,000.00. Please
see our Earnest Money Instruction page for all appropriate details
and certified funds requirements.
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Q. Are there any recent
changes regarding earnest money deposits?
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A. For brokers and buyers in the Midwest, effective
with bids awarded beginning on September 3, 2002, HUD and HMBI
will only accept copies of Earnest Money in the form of certified
funds including cashier's check, money order or Bank certified
check. Earnest Money in the form of personal checks or copies
of deposit slips are no longer acceptable. Please see the Earnest
Money Instruction page for current requirements.
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