How do I find a HUD home?
Before HUD homes are listed for sale, HUD orders an
appraisal and property/pest inspection on the house. This act
establishes the current value for the home in relation to comparable
homes that have sold in the area, identifies any potential problems with
the home, and determines if there is any current termite or pest
infestation.
Each HUD home falls into three categories: 1) an
insurable property (IN), 2) an insurable property with a repair escrow
(IE) and 3) an uninsurable property (UI).
An insurable property (IN) is a home that
meets the appraisal guides for a FHA home loan. Most homes that fit
within this category do not require major repairs outside of the normal
wear-and-tear a home suffers. Offers from buyers with other-than-FHA
financing (such as a VA home loan or conventional loan) or cash buyers
are acceptable for this type of property.
An insurable property with a repair escrow
(IE) refers to a HUD home that is eligible for FHA financing if the
total repairs required on the property total less than $5,000. As a
result, a repair escrow is established to cover the cost of repairs on
the home.
A repair escrow is an account established upon the
closing of the purchase of the HUD home for the amount of repairs on the
home as identified by HUD. After the close of escrow, the lender will
inspect the work as it is completed and distribute the money within 90
days of closing.
It is important to note that a repair escrow is
only offered to those home buyers purchasing the home with FHA-insured
financing. If non-FHA financing is used to purchase the home, the repair
escrow does not apply. Furthermore, the money for the home repairs is
not given by HUD to the home buyer; rather, the cost of repairs are
included in the loan amount and repaid by the borrower as part of the
house payment. Any additional money left over after the repairs have
been paid are applied to the buyer’s mortgage and not disbursed to the
home owner.
An uninsurable property (UI) is a HUD home
generally needing extensive repairs and deemed by HUD as not eligible
for FHA financing in its current condition. Other-than-FHA financing or
an all-cash deal is required to purchase this type of HUD home.
In some cases, a property may be deemed “Insurable
With Conditions”. This refers to properties classified as IN or IE that
generally require have a systems check, roof inspection, or other
property condition determined by the appraiser for an FHA home loan. The
inspection fees are generally paid by the buyer.
Once a home has been classified, it is offered on
the market according to a specific listing timeline. This timeline gives
priority to owner-occupant buyers over investors for the first 10 days a
home is listed. New HUD homes on the market are released each Thursday.
Access to view HUD homes is restricted to select
real estate brokers that are approved by the government. Potential home
buyers must be accompanied by these agents that have access. To view
homes in the Phoenix area, contact Sun National Real Estate at (602)
993-7509.
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