5 Key
Points About HUD Foreclosure Homes Sold "As-Is"
By Alyssa Scott
It is important to know that The Department of Housing and Urban
Development, aka: HUD, owned houses are sold on an as-is basis. They are
sold on an as-is basis because HUD gets these homes from the homeowners
that are no longer able to keep up with their payments. The FHA insurance
has already been paid to the mortgage company by the FHA. Due to the way
this happens, keys are not made to be turned in and there is absolutely no
upkeep records. This is the main reason why it is sold as-is. If HUD went
through and had estimates done on all the homes that have been foreclosed
upon, it would cost a lot of money that would not be able to be recouped.
If you are interested in buying a HUD home sold as-is, there are five
important facts you need to be made aware of.
1. HUD homes are always sold on as as-is basis. The following
information is taken straight out of the Department of Housing and Urban
Development contract. The seller in the contract is HUD. "Seller makes no
representations or warranties concerning the condition of the property,
including but not limited to:
--Mechanical Systems --Dry Basement --Foundation --Structural or
Compliance with Code --Zoning or Building Requirements"
It continues on to state, "Seller does not guarantee or warranty that
the property is free of all visible or hidden structural defects, termite
damage, lead-based paint, or any other condition that may render the
property uninhabitable or otherwise unusable."
Keep in mind that is is best to take along a flashlight when you go to
see the home. Most likely the electric will not be turned on and will be
extremely difficult to see anything in the basement even during broad
daylight.
2. You will have a fifteen day period to have an inspection of the home
you are purchasing. The fifteen days will commence once you have signed
the contract. You must get written authorization from the HUD Marketing
and Management Company to have the electric on for the inspection to be
done. If for some unknown reason, you do not get this permission in the
fifteen days, this does not grant you an extension. You will have the
choice to ask in writing for an extension to have the inspection
completed. Asking for this in writing is your only chance of protecting
your deposit and the inspection rights. HUD does not guarantee anything.
The house is as-is but this will give you the chance to do a home
inspection from an independent company. Once you have this inspection, you
may have things you would like to get fixed right away in order for the
house not to have more problems.
3. You can get property reports on the condition of the house from the
HUD Marketing and Management Department. They can be useful when looking
at houses on the internet but in no way should take the place of the
independent inspection. There are different listing categories for
repairs. If the HUD listing shows an "IN" this means that the house meets
FHA insurance requirements without the need for repairs. You can not take
this as the basis that you will not have to perform any repairs. It could
be you would find out that you would need to make repairs with a cost of
$5,000.00. Knowing this up front with an inspection will help you as you
can then apply for renovation funding. HUD will not make the repairs on
your behalf.
4. You may find out that the HUD home that you are interested in does
not require a lot of renovations. It might be that only fresh paint and
new carpet be done. You may find new homes that require little need for
improvement or other homes that were bought along with a renovation loan
that has recently been fixed up and ready to be moved into. It is quite
common that 1 in 4 houses will be in a bad enough condition that you would
need repairs before being able to move in. Keep in mind that a big
renovation is not for all. It can be quite lengthy and take between six
months to a full year and that is if weather doesn't impede your work
during that time.
5. When it is determined that the HUD home that you are buying has
costs for repairs that are more than $5,000.00, you will have to do an FHA
203K loan. This is the financing most used when buying a HUD home. You
should apply for up to 6 months payments with the 203K rehab loan. This
will make beginning the repairs or renovations easier while still having
the money to pay your rent at your current residence. It is usually
required that working on the home must start within the first 30 days of
the closing on the property and it must continue for more than 30 days.
You will be required to pay a contingency of 10% to 20% of the cost of the
repairs to be added in the loan amount to help take care of other costs
that pop up. If you went ahead and had the inspection done without the
electric being turned on, the contingency is 15%.
When buying a HUD home, it is very important to know what as-is fully
means. There is a lot of stress that can go into buying any as-is home.
You want to try to minimize this as much as possible.
For more information on how to qualify and learn how to apply for
Obama's Loan
Modification Program you can visit:
http://www.foreclosuresmedic.com
Which provides you with valuable resources including:
- Top 10 most frequently asked questions about the program
- Up to date guidelines on if you qualify
- Insider tips
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