The United States Department of Housing and Urban Development (HUD) is one of the largest real estate subsidy programs in the nation. HUD owned homes can provide you some of the best real estate deals on the market if you are prepared for the opportunity. You need to know what to buy, how to buy, and when to buy. This article will deal with the last of these concerns: when to buy. There are better times than others to invest in an HUD property, and you should know how to identify those times.
What is an HUD owned home?
An HUD owned home is a property that has been foreclosed upon by the Federal Housing Administration (FHA). HUD takes possession of the property and puts it on the market. HUD is usually an extremely motivated seller, because its properties are in a market in which properties lose value quickly. HUD also has no direct program to put renters into housing nor the manpower for upkeep, so any properties on HUD books are liabilities, not assets.
Can I buy an HUD home?
Anyone can purchase an HUD home. The program gives first priority to people who are looking for a primary residence; however, if the property does not sell within that time period, then HUD will open the bidding up to the entire marketplace, including real estate investors.
Are HUD homes profitable?
In some cases, HUD homes can be bought for pennies on the dollar, but the final price relies on many factors. The location of the property, the time of year, the time on the market, and the trend of the market are all factors in the final price that you will pay. Market trends play perhaps the biggest role, as the trends are what affect the number of eyes that are on the property.
How is an HUD property sold?
Potential buyers are given notice within two days if a bid has been accepted on an HUD property. The agent for the seller then has two days to deliver all of the necessary paperwork to the local HUD office. Two weeks after this, the buyer should receive a signed sales contract. From here, the buyer has 45 days to close the deal with a mortgage, unless the buyer is trying to obtain a 203k loan from the FHA. If a buyer is paying cash, he will have 20 days from the receipt of the sales contract to close the transaction.
Overall, cash buyers can be in possession of the property in 30 days. Buyers who are in need of third party lending options will usually close within 75 days.
When is the best time to buy an HUD property?
HUD properties have one of the most predictable timelines in the real estate industry. This helps to solidify the better seasons to buy an HUD property in. Properties that do not have a solid timeline may close in a completely different season, reducing the ability of the buyer to predict the market trends that affect the price and sales volume. However, the 30-75 day closing period that is set in stone gives the analysis of the seasons below more relevance.
The spring season is a great time for investors to move into buying properties. The HUD market in particular experiences a higher volume and choice of property; however, there is less competition in the springtime than in the early summer. You may be able to get a property in an advantageous location without having to deal with bidders driving up the price.
Summertime is the hot season for investors. There will be less First Look applications, meaning that the property will be open to more real estate investors. However, the summer gives properties better curb appeal, and families with the money for a summer property will be looking to close on properties that they have been eyeing since the winter season. In short, competition is fierce.
The fall season begins to see investors fall back and more primary homeowners enter the HUD market. First Look buyers tend to make more moves in the fall in preparation for the winter. There are also more foreclosures from primary resident dwellers, increasing the volume of housing.
Winter sees the slowest season in real estate generally, and the HUD market is no different. If you cannot find a property that you want as an investor or as a primary resident, you would do well to identify many properties that may be under pressure. They will likely become available during the latter part of the winter and the early part of the spring season.
Am I ready to buy an HUD property?
The timing to buy an HUD home is personally driven as well as market driven. HUD properties are sold as is, and if you do not have the funds above and beyond the property price point to improve the property to a livable state, then you have just purchased a liability instead of an asset. It is especially important to consider all of the costs of buying a property if you are looking at a third party as your lender. Closing costs, origination costs, and government fees will all take a piece out of your available funds to buy and improve your property. Make sure that you consider a 203k loan from the FHA to buy and improve property.
2 Point Highlight
Properties that do not have a solid timeline may close in a completely different season, reducing the ability of the buyer to predict the market trends that affect the price and sales volume.
However, the summer gives properties better curb appeal, and families with the money for a summer property will be looking to close on properties that they have been eyeing since the winter season.
