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San Antonio Real Estate

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What is a HUD home and how can I buy one?

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HUD Building

Many people ask what is a HUD Home and how it becomes one, so I thought I’d take a few minutes to explain. A “HUD Home” is defined by The Department Of Housing And Urban Development (HUD) as “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.” Basically, this means someone bought a home using an FHA-insured loan, didn’t pay their mortgage, the bank who issued the mortgage foreclosed on the property (not HUD), and it was acquired by HUD. The property is now owned by HUD and they want to sell it, so they list it as a HUD home.

Who can buy a HUD home?

HUD homes are offered to owner-occupants (person who buys the house must live in the house) and after a period of time, if they are not sold, they are available to investors.

How do I find HUD homes?

You can search for HUD homes the same way you search for any other home. In the past, HUD controlled their inventory through very specific channels and agents had to have special keys to unlock their properties (I think I still have a set hanging around somewhere), but as the housing crisis deepened, they changed the rules and simplified the process in order to help move some of their inventory.

Can anyone make an offer on a HUD home?

All offers must be made through a real estate agent registered with The Department of Housing And Urban Development. Most broker in the San Antonio area are registered (including us). The process of making an offer on a HUD home is a little different than other homes, but in general the items you need to know and pay attention to remain the same. Once you and your agent have identified a HUD home as the one you want to purchase be sure to speak with your agent about your expectations about the process as it can take awhile longer than other transactions.

photo courtesy of teofilo

Seller Financing – a new win-win?

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Fistful of Dollars

If you own your home free and clear, or have inherited one with no mortgage attached, congratulations.

You are now privy to a unique world of options when you go to sell your property. In a way that traditional sellers with existing mortgages are not able, you have now opened the door for yourself to be able to offer a wide variety of financing methods, including seller financing, to a broader field of potential buyers, and even make a lot more money.

What is seller financing?

Seller financing means that a buyer agrees to purchase a property from a seller. Instead of going through a bank to finance the loan, the seller becomes the lien holder and collects payments from the buyer directly until the balance of the loan is paid off. As the complexity involved in this can catalyze hoaxes, it is advised to learn more from ironfx scam and related articles. Consulting with experienced people is a good choice too.

Why consider seller financing?

Bigger buyer pool – Lending regulations have tightened in recent years. Maybe a buyer has a non-traditional income source, or shaky credit from past issues but large assets. They may not qualify for traditional financing but still have the means and interest in buying a house. They may be looking for creative/different ways of owning a home. Why not capture them when no one else can?

Closed is Closed – Once the property closes, you, the seller, are no longer responsible for maintenance, taxes, or repairs. Of course you want to make sure that items like taxes and insurance are being paid. But those payments aren’t coming out of your pockets any longer.

Added Control – In a way, you’re doing a favor for the buyer. This means that you have a lot more control in setting the terms of the deal. You can help pick the interest rate, the terms of the loan, and even the sales price (appraisal not required). Obviously you do not want to engage in predatory lending, but you can still structure an agreement in a way that works best for your financial needs.

Added Income from Interest – As the mortgagor, you the seller, would not only set an interest rate for the buyer’s loan with you, but you would reap the benefit of the interest payments ON TOP of the sales price. On a fixed rate mortgage, payments for the first few years are almost entirely interest.

Example: On a $200,000 loan at 5.5%, the total amount paid each month for principle and interest would be  $1,135.58. Over the course of the first year, the total amount paid by the buyer would be $13,626.96.

Of this, $2,694.18 would be applied towards reducing the principal balance owed.

That means that the remaining $10,932.76 would be money in your pocket as interest. And that’s just the first year.

Substantial Downpayment – Many seller financing deals are established under the notion that the seller is taking a big risk selling to someone that couldn’t get financing any other way. For this reason, it is not uncommon to have buyers provide a large downpayment. 20, 30, even 50% payment up front is a great incentive. Not only do you get a large chunk of money initially (to help offset expenses, or use as a downpayment on a new house for yourself, etc.), but this money is yours to keep regardless of what happens.

Resale in Case of Default – Even if you’ve set up the financing carefully, sometimes loan default is inevitable. But if the buyer stops paying, the situation can still have a happy ending. Not only would you have the downpayment and interest already collected, but you could also foreclose on the property and resell it. And maybe even re-sell it at full price.

So, if you are in a unique position in regards to your real estate, there are some powerful reasons to at least consider this option when selling property.

Of course there are numerous serious pitfalls to this type of transaction as well. Anyone considering a lease purchase is encouraged to consult with a real estate attorney and tax professional for a full analysis of risks before entering into an agreement.

Readers are encouraged to consult with an attorney before entering into any real estate contract, particularly one involving seller financing. This article is designed to address only a few of the many complex issues. Suggestions made are not intended as legal advice.

image courtesy of Robbie Biller