By Ryan Fitzgerald
Given the large financial requirement of buying a home, it’s often out of reach for a large portion of the U.S. population. The economic recession, which was triggered by the collapse of real estate and mortgage lending markets, further decreased home buying accessibility. A number of lenders have returned to the 20 percent down requirement when purchasing a home. Since the median price of a U.S. home is currently $228,400, most Americans do not have access to the $45,680 which would be a 20 percent down payment. Certainly, the better credit score a consumer has tends to decrease the required down payment percentage.
Fast growing economies in cities like Austin, Texas and Raleigh, N.C., didn’t see as many home foreclosures as compared to cities like Las Vegas and Atlanta during the recession. When you have higher volatility in home prices, combined with a slower economic growth pattern, the result becomes more HUD foreclosures. So, what is a HUD home, and how do you explain this to your clients?
A Short History on HUD
The U.S. Department of Housing and Urban Development was established in 1965 via the HUD Act, signed by President Lyndon B. Johnson. The primary goal of the HUD program was—and still is—to expand the availability of funds for housing programs and to reach larger segments of the U.S. population. Per HUD’s website, the department’s mission is to “create strong, sustainable, inclusive communities and quality affordable homes for all.”
In terms of home buying, HUD homes are houses that have been purchased through the Federal Housing Administration’s (FHA) government insured loans. HUD assumes ownership of homes should a home buyer default on their loan and, subsequently, their home is foreclosed.
How to Help Clients Buy a HUD-owned Home
Buying a HUD-owned home is a bureaucratic process that requires specific steps—though HUD states that it’s often easier than performing a traditional real estate purchase transaction:
- First, you must be a HUD registered real estate agent to help your clients place a bid. However, you or your clients can also research the HUD home inventory independently at the HUD portal.
- You’ll then need to contact the Listing Broker indicated on the HUD home listing.
- Your client’s offer must be made during what’s known as a specific “listing period.”
- HUD emphasizes the importance of obtaining a home inspection—however, even if your clients aren’t buying a HUD home, home inspections are still recommended.
- If your clients are financing the purchase of a HUD home, they will need to obtain a mortgage loan through a traditional lender. If they’re seeking an FHA loan, they must secure the loan through an FHA approved lender.
- Owner-occupant purchasers are priority bidders and HUD gives them a certain amount of time (10 days) in which to bid on the purchase of the home.
- HUD homes are maintained and inspected by a Field Service Manager (FSM), which is a third-party company or individual who contracts with HUD to perform any repairs or general maintenance as required. If your clients have specific questions about the home, you’ll be directed to contact the FSM.
- Asset Managers are also third party contractors who are responsible for marketing and selling the home. Therefore, questions about the selling process can be directed towards the company or individual who is the AM for the property of interest.
- If you’re not a registered HUD agent, your clients can still use you as a closing agent, however, they will be responsible for paying any fees involved in conducting the closing.
- The down payment, closing costs, and commissions are generally lower when buyers purchase a HUD home.
Buying a HUD home can take a fair amount of navigating through all of the bureaucracy. However, considering that HUD doesn’t necessarily want to maintain a large inventory of empty homes that are just sitting on the market, your clients may find a great deal on a brand new home. Another great website to check out for HUD homes is HomePath.com by Fannie Mae.