If you are planning on investing in HUD homes or homes being sold by the House and Urban Development, you should know that the rules for HUD homes are different than when you are buying a regular home. This is because the department does its business through a bidding system that is restricted to property occupants, government agencies, and nonprofit organizations.
In this article, we are going to talk about how the HUD system works and how you can take advantage of it.
The bidding all happens on the website http://hudhomestore.com. Private investors, however, cannot bid on the system. This is because the HUD has a system in place whereby there are different asset management companies that manage properties in the different areas across the country. These asset management companies use real estate brokers to list and market homes by the HUD. What this means is that only HUD real estate brokers can bid on the HUD Homestore website, although they can submit investors bids on behalf of investors.
There are two types of property that can be listed in there – uninsured and insured. Insured just means a property is backed by the Federal Housing Authority or FHA, and uninsured just means it is not.
When an insured property is first listed, the occupant, government agencies, and nonprofit organizations are the only ones that can bid on it within the first 15 days. On the 16th day, investors can submit their bids. For uninsured properties, bidding is restricted only for the first five days, after which anyone interested can make a bid. You know you can bid on a property when it says “All bidders” in the listing.
There is every incentive for real estate investors to buy HUD homes. For one, they are reasonably priced. For another, you can actually bid up to 12% lower than the asking price.
If you plan on bidding on a HUD property, there are some things you need to know. For one, only real estate brokers can submit a bid on your behalf. However, you do not deal with just any broker. You need to deal with one that can provide you with a NAID number. Only brokers with NAID numbers can submit bids on the HUD Homestore website.
So, the first thing you need to do when it comes to buying a HUD home is to find a broker that can submit a bid for you. You can easily find brokers. Just search for them on Google by using the search term HUD broker plus the name of your local area. Again, before asking a broker to submit a bid for you, make sure to ask for the broker’s NAID number.
The keys to successfully investing in HUD homes is to look at the period deadline. The period deadline is simply the date for when the occupants, government agencies, and nonprofit groups can bid on the property. You can bid on a property the day after the period deadline.
As for submitting the bids themselves, you need to provide the following information: social security number, tax ID number, or EIN number. You are not required to submit documents at this point.
Once your bid is submitted, you need to wait for the HUD to respond within 48 hours. If you do not get a response, there is a high chance that your bid was rejected. You can verify by asking your broker to check the status of your bid. If there are no other bids accepted, you can actually bid again. At other times you might get a counter offer from the HUD, but often times it just informs you of the net price the agency is willing to accept.
When your bid is accepted, though, your agent will be notified via email. Instructions on how to send the paperwork will go along with the email. You and your agent will have 48 hours to send the original documents. The forty-eight hours does not apply to weekends and holidays.
What documents do you need to submit? You will need to send the following: proof of funds or prequalification letter, HUD-provided sales contract, disclosures, and addendum. You will also need to provide certified funds for the purchase as well as earnest money, which is non-refundable. Your real estate agent should be able to help you with the details.
How much earnest money do you send? It’s $500 for contracts at $50,000 and below and $1,000 for contracts over $50,000.
This is something very important: Your agent needs to inform the HUD that your package is going to be late, that is if it is going to be late. Anyway, if the documents you send requires any corrections, the HUD will inform your agent and you will have 24 hours to send the corrections.
As you can see from above, the process of buying a HUD home is totally different from that of a regular real estate transaction. This is mainly because of the bidding system. However, just because it is different, it does not mean it is difficult. It can be easy, especially if you work with a NAID real estate agent.
How do you complete an inspection on a property? When the HUD signs the purchase contract, they will email your agent with a signed copy along with the appraisal and a request for turning on utilities. You have 15 days after the HUD signs the contract to inspect the property, and you have a three-day window to check the utilities. Make sure to send, as soon as possible, the request for activation of the utilities to the HUD’s property preservation company.
There are investors out there that like to pose as a HUD homeowner because they want to bid on the property first. However, we would like to warn you against this practice. HUD homes are very desirable and so investors have no qualms about reporting posers to the government. Investors who are caught posing as homeowners can be fined $250,000 and be required to spend time in prison.