HUD Homes Are Sold As-Is; 5 Things You Should Know

The 5 Things You Should Know About the “As-Is” Condition of a HUD Home

Many people know that HUD (The United States Department of Housing and Urban Development) owned homes are sold as-is.

They are sold as-is because HUD has acquired ownership after a homeowner is no longer able to make the monthly payments and the FHA mortgage insurance has been paid to the Lender by the insurer (FHA).

No key is returned. No maintenance records exchanged.

If you are a potential buyer of a HUD home or licensed real estate broker with clients interested in learning more about “as-is”, here’s 5 things you need to know:

1.  HUD Homes are sold STRICTLY As-Is. The following is taken from the HUD sales contract. The referenced Seller 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 goes on to say “Seller does not guarantee or warrant that the property is free of visible or hidden structural defects, termite damage, lead based paint or any other condition that may render the property uninhabitable or otherwise unusable.” The utilities may not be on at the property so it is best to take a flashlight at all times for rooms such as the basement even when viewing during daylight hours.

2.  Purchasers have a 15 day opportunity to have a home inspection performed.  The 15 day period begins when the purchaser signs the contract, not when the contract is ratified.  Before performing an inspection, it is also required to obtain written permission from the HUD Marketing & Management Contract to have the utilities turned on.

If there is any delay in obtaining the written permission needed to have the utilities turned on, that does not extend the limited 15 day inspection period. A written extension of time to perform an inspection may be submitted as the only way to protect an owner occupant’s earnest money deposit and right of inspection.  Although the property is sold as-is, there is still an opportunity to perform an independent home inspection by hiring an inspector of choice.  Purchasers may be required to have a property re-winterized after the home inspection has been completed depending on the time of year.  This is to prevent the freezing of pipes in homes that are often without heat.

3.  Property condition reports provided by HUD Marketing & Management contractors are helpful in previewing homes online, but should not be used as a substitute for an independent home inspection.  The list of appraisal required repairs that determine the listing type (IN, IC, IE, UI) that is assigned to each property. These listing types as well as the termite reports may underestimate the costs to cure.  There are HUD listings that have an IN listing type which means that the property meets FHA mortgage insurability requirements without any required repairs. But after a thorough home inspection it may be determined that the house needs more than $5,000 in repairs.  Purchasers can use a FHA 203k loan to finance all improvements in excess of $5,000. Although HUD will not make any repairs there are options available for purchasers to borrow renovation funding.

4.  Not all HUD homes need complete renovation.  Some just need carpet & paint.  There are brand new HUD homes that need minimal improvements as well as properties that were purchased with a renovation loan that have been recently updated and are in move-in condition.

For each house that doesn’t need much work there are at least 3 or 4 properties, if not more, that are inhabitable. No matter the home, most purchasers decide that new carpet or flooring and paint are the universal fix that most new owners make to all homes, but an extensive renovation project is not for everyone.  It can easily be a 6 month to over a year (without inclement weather) long project to complete.

5.  Purchasing a HUD home with rehab costs that exceed $5,000 is performed using an FHA 203k loan.  FHA 203K loans are the most popular financing used to purchase HUD homes. The borrower can also roll six months’ mortgage payments into the 203K rehab loan, making it easier to begin renovations on the new property while still paying a mortgage or rent at the current home. Some 203k requirements include that work on the property must begin within 30 days of closing and must not cease for more than 30 days before completion. The work must be completed within the time period allowed (not to exceed 6 months), although an extension of time may be granted to complete the project with a written request and documentation as to what is causing delay. The Lender will also require a contingency reserve of 10-20% of the cost of rehabilitation to be included in the loan amount to cover unexpected costs.  If the utilities were not turned on for the inspection, the minimum contingency reserve will be 15%.

Purchasing any home as-is can add tension to a real estate transaction, but when buying a HUD home as-is; the most important thing is just to understand what as-is means.

Get FREE Sample Pages of the book

How To Make Money With HUD Homes

http://hudbooksample.urbanlivingrealty.com

How To Make Money With HUD Homes is a

Step by Step HUD Profits Program…

Simple, Effective, and Proven

http://www.TeacherNextDoorProgram.net