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FHA short sales: How to buy a HUD home

by Gina Pogol
December 27th, 2010

Experienced real estate investors have a favorite adage: “You don’t make money on real estate when you sell, you make it when you buy!” How does that work? It’s simple, really. Buyers in general are in a more powerful position than sellers are, and that goes double in today’s market.  So if you are in the market for property,  you will never be in a better position to make some money by paying less. And there is almost no better way to pay less than purchasing a HUD home at a discount and financing at today’s mortgage rates.

HUD homes at a discount

HUD homes are foreclosure properties that were financed with FHA mortgages. HUD Homes are listed online and can be viewed at http://www.hud.gov/homes/homesforsale.cfm. Or just contact a local real estate agent or HUD’s Management and Marketing Contractor in your state. It is not uncommon for HUD homes to be priced substantially lower than comparable properties not in foreclosure.

Your real estate agent must submit your bid for you. Normally, HUD Homes are sold in an “Offer Period.” At the end of the Offer Period, all offers are opened and, basically, the highest reasonable bid is accepted. If the home isn’t sold in the initial Offer Period, you can submit a bid until the home is sold.

A home for $100? Really?!

Well, kinda sorta. Teachers, nurses, and first responder can purchase HUD homes in revitalization areas for half price and with as little as $100 down  through HUD’s Good Neighbor Next Door program.  A three-year occupancy is required, which just means that you agree to live in the home (and nowhere else) for three full years and all that lovely equity is yours!

Financing HUD homes

HUD Homes can be financed in a variety of ways. In many cases you can finance them with a new FHA home loan.  How a HUD home is listed determines which FHA-insured financing program applies. Properties that do not require significant repairs can be purchased with an FHA-insured mortgage. The property listing will indicate if it is eligible for purchase with an FHA-insured mortgage. If the property is pretty trashed you may need an FHA rehab loan to finance the purchase and necessary improvements.

There are also many local and State government programs available that provide grants for the downpayment or to help pay closing costs. To find out what programs are available in your area visit http://www.hud.gov/buying/localbuying.cfm.

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