How long must you wait…

Chris Knoche is a loan officer for John Adams Mortgage, which is the mortgage company that Real Estate One owns . Chris makes sure to keep all of the agents in the Real Estate one offices that he serves up to date on the latest news and procedural changes from HUD, FHA, VA and lenders in general. Recently he sent this information out to all of the offices.

We’ve received clarification from HUD on the seasoning requirements for previous foreclosures and the treatment of them going forward. This guidance is not new but has been more clearly defined in the new handbook. Even though the new manual will not be effective until September, we are to use the defined timing rule effective immediately.  

For previous foreclosures or deed-in-lieu of foreclosure that are FHA insured, the borrower is not eligible for a new FHA-insured mortgage for three years after HUD pays the claim to the Lender or Servicer. 

For previous foreclosures or deed-in-lieu of foreclosure that were  VA, USDA , Conventional  or any other loan type, a borrower is not eligible for a new FHA insured mortgage until the date that the title ownership of the property changes from the borrower to the lien holder.  If the credit report does not indicate the date of the foreclosure or deed in lieu of foreclosure, the mortgagee must obtain the settlement statement, deed, or other legal documents evidencing the date of property transfer.  This is not the same as the sheriff’s sale date.  The “seasoning” must include the 6 month redemption period as required by law.

In short, the waiting period from a foreclosure is now three and a half years. I am available if you have any questions. Chris Knoche - 248-535-7073.

So those who had the misfortune to go through a foreclosure or who gave up their house in a deed-in-lieu of foreclosure transaction  now know more clearly how long they have to wait in order to get another mortgage that is backed by FHA (and thus by HUD). 

First Time Buyers – What should I know about HUD houses?

I saw a home with a sign that said it is a HUD property, what’s that all about?

First of all, what is a HUD home? HUD stands for the U.S. Department of Housing and Urban

Development, a branch of the federal government. From the HUD Web Site comes this answer - A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.

So it is a home, duplex or 4-plex that was foreclosed. Maybe there was an attempt to do a short-sale and that didn’t work out. Maybe the lender even tries to sell it in foreclosure and failed. For whatever reason the investor has taken advantage of the FHA guarantee on the original loan and given the property to HUD. 

HUD then assigns these properties out to local real estate brokers for sale to the public.

HUD homes are sold in “As Is” condition, which can be anything to move-in ready (rare) to needs lots of work (common). Again, from the HUD Web site: HUD does not warrant the condition of its properties and will not pay for the correction of defects or repairs. Since the new owner will be responsible for making needed repairs, HUD strongly urges every potential homebuyer to get a professional inspection prior to submitting an offer to purchase.

Many HUD houses are priced very low, so a great number of them are purchased for cash; however it is possible to get a mortgage to purchase a HUD home. There are special programs available from lenders in case the home needs extensive repairs. The HUD site explains some options in that case:

If you are interested in acquiring a HUD Home that is in need of repair, you may be interested in applying for an FHA 203(k) Rehabilitation Loan. When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. Click here for more information about FHA's 203(k) Rehabilitation Loan Program.

Your lender should be able to explain to you the financing options for a HUD home that they have available. There are programs available through FHA and you may qualify for one. The home has to qualify too; so check with your lender on that. There are also special programs available through FHA for designated members of the community to get an even better deal on these homes. Again from the HUD site:

FHA REO properties located in designated Revitalization Areas are available at a reduced sales price to law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments. Read more about these Good Neighbor Initiatives.  You can also view maps of REO properties and special programs such as Revitalization Areas with HUD’s Single Family Home Locator.

Buying a HUD home is a slightly different process and your Realtor® should know how to handle that. Basically when a home is made available through HUD it is placed on the HUD Web site the HUD Home Store. It is at that site where you search for HUD homes that are for sale in your area and can obtain more information about the homes. Once you have found a home on that site that you think you will like, you can arrange through your Realtor to go see it. If you like it you can make a bid through your Realtor. Only Realtors are authorized to submit bids through the HUD Home Store site.

Bidders who are individuals who intend to live in the home (you will have to sign a sworn affidavit to that affect) are given a special 2 week period of exclusivity at the beginning of the homes listing for bidding and are considered first.  After that, investors may bid on the house.  Any and all bids from individuals are evaluated prior to opening the bidding to investors. Usually the best and final bids are called for from the bidders before moving into that second stage.

It doesn’t cost anything to make a HUD bid; however, if your bid is accepted you will need to write the check for your earnest money within 24-48 hours of the acceptance of your bid, so be ready with that. You will also have a specified amount of time to get the deal to a closing, so be ready with a pre-approval and have some contractors lined up to go in and give you bids on repair work, so you can get a good idea of how much you really need.

HUD reserves the right to reject all of the bids, if they are considered to be too low or the bidder cannot prove that they actually can complete the deal. You may have to wait a week or two to find out if your bid was accepted or rejected. If it was rejected you may be able to bid again, if no other bids were accepted; however, by the time that occurs you will probably be bidding against investors; so make your first shot your best shot, if you really want the house.

The bottom line for HUD homes is that the process, while slightly different in some ways, is very much like buying any other house and your Realtor should be able to facilitate the differences of the process for you.  You can go to the HUD site for more information by clicking here. I would add that the home inspection process is so much more critical with these homes, since so many of the have suffered abuse and are n need of serious repairs. These are not your “DIY weekend with a paintbrush” properties; so exercise extra caution when evaluating the property.