What Exactly Is A Hud Foreclosed Home?

What Exactly Is a HUD Foreclosed Home?

In 1999, many things changed with regard to the way HUD sold homes as HUD moved toward the privatization of its effort to sell its inventory of foreclosure homes. As a result, you can now find a list of HUD foreclosure homes on the internet, pick one out that you like and buy it – right? Well, not exactly, but we will offer you some specific pointers for navigating the maze and the myths of HUD foreclosure homes.

How Does a Home Become a HUD Foreclosure Home?

First of all, you should know that a home becomes a HUD foreclosure home because someone who had an FHA Insured loan defaulted on that loan and was foreclosed on by their mortgage lender. The mortgage lender, in turn, collects any losses they incurred from foreclosing from FHA (Federal Housing Administration). FHA is part of HUD (Housing and Urban Development). HUD, in turn, eventually gets the deed to the foreclosure home and offers the home for sale to the general public.

The reason mortgage lenders can recover their losses is that everyone—yes, everyone—who gets an FHA Insured loan pays what is called “mortgage insurance.” These insurance premiums show up on your settlement sheet as an initial premium, which is usually added to your loan amount. An additional monthly premium is then added as part of your mortgage payment. These premiums go into a fund to payoff mortgage lenders.

It takes 6-12 months for HUD to get the deed to a home so it can try to evaluate and sell the foreclosure home. It takes the mortgage lender 3-6 months to complete the foreclosure buying process and another 3-6 months to get reimbursed by HUD in order for HUD to obtain and inspect the foreclosure home, appraise the foreclosure property and put it on the market. All the while the foreclosure home is usually vacant. The total timeframe could easily be 12-18 months from the date of foreclosure, but 8-12 months is probably the norm. These factors contribute to the reasons that HUD sells foreclosures homes strictly on an “as is” basis.

 

Check out this great video about buying a home!

The Importance of a HUD Foreclosure Home Inspection

HUD foreclosure homes have typically been vacant for an extended period of time, often without any utilities turned on. HUD is working with its private Marketing and Management contractors (M&Ms) to come up with an efficient way of getting utilities turned on in a foreclosure home before the appraisal is completed and keeping things like sump pumps running through the process. Until recently, appraisers did not necessarily have the benefit of having gas and electric service. How could they give a reasonable determination of foreclosure home value without knowing if the plumbing, electric, heating and air conditioning are in working order? These procedures have been changing and resulting in better appraisals of foreclosure homes. However, foreclosure home inspections should be conducted to see for yourself exactly what the condition of a foreclosure home is so that you go to the settlement knowing what to expect from the foreclosure home and what repairs will be needed.

Remember, HUD foreclosure homes are sold in “as is” condition. If the repairs needed exceed $5,000, HUD has a program to lend you the money called the FHA 203k Rehab HUD Loan Program. This program is covered in further detail in “How Do I Buy a Foreclosure?”

HUD wants you to use a real estate agent to assist you with submitting the appropriate contracts and forms if your foreclosure home bid is accepted. You can find the HUD property list online at www.hud.gov. Take your time reading the screens and you will be able to select your state and view your particular listings. HudBox offers this same list of foreclosure homes and provides some easy-to-use bells and whistles, as well as some other real estate content you will find very helpful in your search for a real estate agent or a mortgage lender who has experience working with HUD foreclosure homes and FHA loan programs.

HUD Foreclosure Homes and Minimum Property Standards

It is also important to understand the difference between Insured (IN), Uninsured (UI) and Insured with an escrow (IE) foreclosures.

Here are some basics for you to think about:

• Insured means that the foreclosure home meets HUD’s minimum property standards and has been appraised for the stated value and your mortgage lender will not need a new appraisal (which saves you $400.00 on a new FHA appraisal!).
• Insured with an escrow means that HUD’s inspections and appraisals indicate that there is less than $5,000 in repairs needed for the foreclosure home to meet HUD’s minimum foreclosure property standards. This is important because you need to know that the minimum foreclosure property standards are, in fact, very minimum. Do not give up on your right to a home inspection just yet. First, take a look at the HUD minimum foreclosure property standards. You need to know that HUD expects you to complete the repairs to the foreclosure home and then get your mortgage lender to inspect and approve the repairs before you can get the funds from the repair escrow. This means that you need to get someone to do the repairs that will wait to get paid when you do or you must lay out the money and get reimbursed by your mortgage lender.
• Uninsured properties require you to pay cash or get some kind of rehab loan. These foreclosure homes need more than $5,000 in repairs (often $10,000 to $20,000 or more). HUD offers the FHA 203k Rehab HUD Loan, which works very well if the “team” helping you knows what they are doing. An experienced real estate agent, as well as a mortgage lender experienced in the processing of FHA 203k HUD loans, will help save you time and money. The interest rates and the amount of HUD loan discount points is usually a little higher than a standard FHA loan, but you can often buy these foreclosure homes significantly below market prices if you are willing to put up with the higher fees and the hassle of fixing them up.

 

To learn more about HUD homes visit the Department of Housing and Urban Development. The more information you can learn, the better it will help you during your HUD home buying process!

The Basics In Buying Foreclosed Homes

The Basics In Buying Foreclosed Homes

Foreclosure homes can offer you a great value! If you are considering purchasing a home that is in foreclosure, this primer will help you with the buying process and how to find the best home for your family.

One thing we stress is to not be in a hurry to purchase a foreclosed home. By rushing – you may miss out on another great deal that may come available – and because there is a unique process to buying a foreclosed home, we encourage you to take your time and evaluate all of your options. It will only benefit you in the end.

Buying A Foreclosed HomeFamiliarize Yourself With Your Real Estate Marketplace
It is important that you take the time to become familiar with the real estate marketplace that you are looking to purchase in. Real estate markets can differ greatly from town to town and sometimes even from zip code to zip code or even block to block,by educating yourself you will have an upper hand in your purchasing of a home. It is important that you know how your preferred location market differs from those around that area. Determine your perimeters geographically. As your experience grows, your perimeters can and should expand so that with enough experience and a sizable financial cushion the idea of buying foreclosure homes in different states will become a reality. First, however, you must get comfortable with the foreclosure home market in your own “backyard”.

What does the average home sell for in your area? The answer to this question will enable you to determine the spread between the future target purchase price of your foreclosure home and the average sales price (your equity). To use the top-end selling price for that area will not give you an accurate picture. Hope for the best but prepare for the worst.

What is the average time a home is on the market in my “backyard”? The answer to this question will help you calculate the carrying costs of your future purchase as well as determine if one neighborhood is more desirable than another. If your future purchase has a days-on-the-market time which, when calculated, consumes all of the possible profits then you need to know this in advance. Do not assume that because you are more aggressive or intelligent than the average homebuyer you will be able to reduce the time the home is on the market. Often, time on the market has nothing to do with your ability to advertise your home or negotiate.

Sometimes interest rates increase quickly (spike), contractors that you hired are late or events that are out of your control will affect the selling date of the home.

How many foreclosure home deals come available on an annual basis?
The answer to this question will help you recognize an opportunity from an option. If such deals are rare, then you may have to reduce your expected returns in the short term for a great upside in the future. If a neighborhood has few (if any) home buying opportunities that indicates a strong market. If you have a personal guideline of 15% equity before purchasing a home, you may decide that a particular neighborhood is still desirable even though you can only find a 10% equity position. The appreciation of the foreclosure home in one year will make up the difference.

Rank The Areas Containing Foreclosure Homes in Your Marketplace
What are the most desirable medium to low cost housing areas in your “backyard”? Break down the neighborhoods on your list of foreclosure homes. Assign each neighborhood a number from one to five. One is terrible and five is the best neighborhood for foreclosure home investing purposes. Medium to low cost housing is specified for several reasons:

After you have assigned each neighborhood a value it will be far easier to recognize good opportunities. Foreclosure homes in neighborhood A might be a possible option, in neighborhood B there may be great foreclosure home opportunities and neighborhood C a terrible idea.

Many skilled investors do not know how to make a determination between neighborhoods and may make expensive mistakes that can be easily avoided with this simple system.

Shop For Equity First. Then Marketability.
Many would-be investors make the simple mistake of repeating what they have heard regarding what makes a good real estate investment. They believe that a 3-bedroom/2-bath free standing home is the only investment worth making. This is absolutely not true.
What you want is equity. You do not want to end up with an oddball property. If one-bedroom condominiums are commonplace in your real estate market then they are every bit as valuable as a single family/free standing home. Shop for equity first and then for marketability. Leave all the foolish notions for those who know less than you. Your potential market has just increased because your knowledge with regard to buying a foreclosure home has increased.

Ready To Find Your First Foreclosed Home?

If you are ready to get your home buying underway – you can do a few things. Check with your local realtors, they often know which homes are in current foreclosure and can help not only answer your questions – but to find a home in the the best market for you. You can also do some online searches and use websites like Zillow to find foreclosed homes in your preferred area.

photo credit: Mike Licht, NotionsCapital.com

FICO Scores What Are They And Why Should I Care?

FICO stands for Fair Isaac & Company. These are credit scores that the following three credit bureaus report: TRW (Experian), Equifax, and Trans-Union. The credit scores my vary with each bureau because they all use different variations to calculate the FICO. The credit score itself can be anywhere from from 300 to 900. If you can guess — the closer to 900 you are the better!

The formula for exactly how the credit score is calculated is proprietary information and owned by Fair Isaac. But below you will find an approximate breakdown of how it is determined:
FICO Score Why It Matters

35% of the credit score is based on your payment history. This makes sense since one of the primary reasons a mortgage lender wants to see the score is to find out if (and how timely) you pay your bills. The credit score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall credit score.

30% of the credit score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more credit cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 30% or less of their limits.

15% of the credit score is based on the length of time you’ve had credit. The longer you’ve had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.

10% of the credit score is based on the number of inquiries on your report. If you’ve applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your credit score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you haven’t used the cards or gotten the loans). The more recent these inquiries are, the worse for your credit score. FICO scores only count inquiries from the past year.

10% of the credit score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have make a difference. There is no magic number or combination of types of accounts that you shouldn’t have. These actually come into play more if there isn’t as much other information on your credit report on which to base the score.

The credit score is actually calculated using a “scorecard” where you receive points for certain things. Creditors and lenders who view your credit report do not get to see the scorecard, so they do not know exactly how your score was calculated. All that the creditors and lenders see are the final scores.

Basic guidelines on how to view the FICO scores vary a little from lender to lender. Usually, a score above 680 will require a very basic review of the entire loan package. Scores between 640 and 680 require more thorough underwriting. Once a score gets below 640, an underwriter will look at a loan application with a more cautious approach. Many lenders will not even consider a loan with a FICO score below 600, some as high as 620.

FICO Scores and Interest Rates

Credit scores can affect more than whether your loan gets approved or not. They can also affect how much you pay for your loan, too. Some lenders establish a “base price” and will reduce the points on a loan if the credit score is above a certain level. For example, one major national lender reduces the cost of a loan by a quarter point if the FICO score is greater than 725. If it is between 700 and 724, they will reduce the cost by one-eighth of a point. A point is equal to one percent of the loan amount.

There are other lenders who do it in reverse. They establish their base price, but instead of reducing the cost for good FICO scores, they “add on” costs for lower FICO scores. The results from either method would work out to be approximately the same interest rate. It is just that the second way “looks” better when you are quoting interest rates on a rate sheet or in an advertisement.

To learn more about the FICO please visit: MyFico What Is In Your Score.

Can I Really Get A Home If I Have Bad Credit?

We understand life can sometimes bring unexpected occasions that can negatively impact your financial goals. With an uncertain economy and employers more concerned about their bottom lines – layoffs can wreak havoc on your credit. Then their are medical expenses, home repairs and other unexpected money related events that you may or may not be prepared for. Unexpected life events – can ruin your credit.

Spring Lake NJ Real Estate Agent Gives Bad Credit AdviceLate phone bills, past due rent — or late credit card payments can make your credit score plummet quickly, in turn making your chances of getting a new home seem dismal.

Negative items on your credit can be removed quickly and easily if you know how. The only reason credit problems ever become an issue is when they are ignored. By hiding from the issue you allow the credit problems to gain momentum and the cycle of ignorance continues to grow.
It is not difficult to understand that when a credit reporting agency annotates that you have paid late on your car payment that they do not actually gain financially by doing so. These credit agencies merely post information that was given to them by the creditor. This is important to understand in order to appreciate how and why the system discussed here has been so successful.

Jack Green, a realtor specialized in selling Spring Lake NJ real estate says, “Home buyers with bad credit do have options for getting their dream homes. I have seen people get homes with substandard credit just by being honest and open about their finances with the bank.”

Here are a few tips from Jack about how you can best increase your chances of getting a loan even with bad credit:

1) Know your credit report! It is important that before you start the process of applying for a loan that you do what you can to resolve any negative issues on your report. Is there incorrect information? Can you pay off debts that are outstanding now? Dispute what you think is wrong and address what is legitimate. This should be done at least 30 days prior to your wanting to apply for a loan.

2) Visit your local HUD office. Click here for a directory of offices. Speak with a counselor about your steps needed to get a home with bad credit. They can assess your specific needs and direct you according to your unique circumstances.

3) Look at options and be flexible. Can you get less home for less money that may require some work? You can get a fixer-upper for much less money making it easier to qualify for. Also consider doing a “rent to own” deal. This will give you the opportunity to prove you are credit worthy and then a portion of your rent can be applied to the down payment. This will give you time as well to continue working on your credit report and improving your worthiness!

When dealing with the credit agencies, there are some things to consider as well.

By disputing the accuracy of the negative credit item through a series of challenges to the credit reporting agency you are challenging the reporting agency to defend their information. If the credit agency elects to meet the challenge and go to court they may be found to be accurate, but what have they gained?

The credit reporting agency will have lost because the process of defending the credit report in question is costlier to them than any financial reward they could possibly receive. Remember that the credit reporting agency is not a creditor itself, therefore win or lose they lose because of the cost involved.

This is why so few challenges are taken up by the credit reporting agencies. Fewer than one in one hundred challenges to a credit report are fought when the challenger has done the appropriate paperwork and done it correctly.

In order to properly challenge each credit agency a professional service is recommended. You can challenge a credit agency on your own with some prepackaged programs, but the likelihood of success is magnified 100 times by using a credible firm that is well versed with this segment of the credit industry.

We will write more about this popular topic – but we hope this will help you get started on your journey to getting a home loan!

Can I Really Buy A Home With No Money Down?

Tips For Buying a Foreclosure Home With No Money Down

The homes offered by the Federal Housing Administration (FHA) are unique from other types of foreclosure homes because they offer several options for buying a home with little or no money down which is what many first time owners need . But it is really important to really understand the different ways in which the FHA lists the foreclosure homes that they are selling.

IN = Insured
IN indicates a foreclosure home that currently meets minimum property standards (MPS) and is currently in livable condition. These foreclosure homes are not currently available with no money down, but can be obtained with no money by applying these techniques.

Simply bid on the foreclosure home using an FHA 203b mortgage (as seen on the HUD contract) and then have the foreclosure home inspected. Be certain that you are with the home inspector and that the home inspector understands that you are interested in finding the deficiencies of the foreclosure home. Be sure the foreclosure home deficiencies are included in the necessary MPS items, including structural, heating and plumbing—paint and carpet will not be enough.

Send the foreclosure home inspection along with your request to include the necessary funds in the price you are paying for the foreclosure home. Repair funds requested must exactly meet the increase of the purchase price for the foreclosure home. Be sure that the amount requested is less than $5500 and that is approximately the three percent you were required to put down on the mortgage.

You could increase the amount of money received for repairs by applying for a 203k mortgage after the foreclosure home has been inspected. This raises the amount of funds received to a possible limit of 110% of the value of the foreclosure home after repair.

IE = Insured with Escrow

IE indicates a foreclosure home that requires some degree of repair in order to meet MPS. Additionally, IE foreclosure homes are not currently in livable condition. These foreclosure homes are not currently available with no money down but can be had with no money by applying these techniques.

Simply bid on the foreclosure home using an FHA 203b mortgage (as seen on the HUD contract) and then have the foreclosure home inspected. Be certain that you are with the home inspector and that the inspector understands that you are interested in finding the deficiencies of the foreclosure home. Be sure the foreclosure home deficiencies are included in the necessary MPS items, including structural, heating and plumbing—paint and carpet will not be enough.

Send the foreclosure home inspection along with your request to include the necessary funds in the price you are paying for the foreclosure home. Repair funds requested must exactly meet the increase of the purchase price for the foreclosure home. Be sure that the amount requested is less than $5500 and that is approximately the three percent you were required to put down on the mortgage.

You could increase the amount of money received for repairs to the foreclosure home by applying for a 203k mortgage after the foreclosure home has been inspected. This raises the amount of funds received to a possible limit of 110% of the value of the foreclosure home after repair.

UI = Uninsured

UI indicates a foreclosure home that requires repairs in order to meet FHA standards and that is currently not in livable condition. These foreclosure homes are available with low money down but can be obtained with no money down. It is even possible to buy these foreclosure homes and make a substantial profit if you apply the following techniques.

Simply bid on the foreclosure home using an FHA 203k repair mortgage (as seen on the HUD contract) and then have the foreclosure home inspected. Be certain that you are with the home inspector and that the inspector understands that you are interested in finding all of the deficiencies of the foreclosure home. Be sure that the foreclosure home deficiencies are included in the FHA minimums, including structural, heating and plumbing—paint and carpet will not be enough.

The home inspector will send the foreclosure home inspection to the mortgage lender along with the financial requirements to do all of the noted repairs. The inspector’s assessment of the repair cost can be adjusted up or down in order for you to get enough money to complete the repairs. Be sure to allocate enough so that you can break even on the purchase. If you have any need for additional cash, include a margin so that you can either add to your savings or pay some additional debt off. The maximum mortgage allowed is 110% of the value of the property after repairs. The bank generally frowns on this practice, but if you act as the general contractor and work on the foreclosure home yourself, you can pay yourself for the work performed.

 

To get more in depth HUD information, please visit HUD.GOV!