Monday, April 6, 2009

What are HUD homes and what is the process to buy one?

Department of Housing and Urban Development (HUD) residential foreclosures are available throughout the United States. The sales process for purchasing a HUD home isn't quite the same as you'll encounter when buying a home from an individual, so take a few notes before you go home shopping.
What is a HUD home?The Federal Housing Administration (FHA) is a part of HUD--the part that provides federal mortgage insurance. If a foreclosed home was purchased with a loan insured by the FHA, the lender can file a claim for the balance due on the mortgage. FHA pays the lender's claim, then transfers ownership of the property to HUD, which sells the home.
Why should I consider a HUD home?
These homes are typically well below market value. They are a great investment to consider and most are in good condition and need very little work. Ask your realtor for detailed information on the properties you are considering.
How much do HUD homes cost?HUD homes are appraised, then priced at fair market value for their location. The price of a home in need of repairs is adjusted downwards to reflect the investment the new owner must make to improve the home.
Will HUD make the repairs?HUD homes are sold as-is. The new owner is responsible for all repairs and improvements.
How do I find a HUD home?You can view HUD listings by contacting a real estate agent, or visit
When you've located a home you would like to see, any HUD-approved real estate office can show you the property. HUD employees do not work with home buyers--you must use an agent.
Do I simply make an offer to purchase a home?HUD foreclosures are sold using a bidding process. There's an Offer Period, during which sealed bids are accepted from your agent. At the end of that period, all offers are opened. HUD will generally accept the highest bid, or the bid that brings them the highest net.
If the home remains unsold after the initial period, bids are opened as received.
If your bid is accepted, your agent will be notified within a day or two. You will be given a settlement date, usually 30-45 days from the date of your accepted contract.
HUD will pay the real estate agent you are working with. The agent that submits the online bid will be the agent getting the commission.
Will HUD finance the home?HUD does not finance homes. You'll need to arrange for conventional or other financing prior to placing a bid on a HUD property. If your bid is accepted, and you do not close on the house, you may lose the earnest money deposit you submitted with the offer.
Should I have a professional home inspection?Home inspections are recommended for any home purchase. You should inspect a HUD foreclosure before you make the offer to purchase. It will help you determine a bidding price, especially if repairs are required.
Homes build prior to 1978 may contain lead paint, so learn more lead paint hazards before making an offer. Other items to consider are asbestos content, buried storage tanks, and other environmental hazards.
Can I buy a HUD foreclosure for investment purposes?During the initial offering, HUD homes are usually available only to those who wish to live in the home. If an owner-occupant does not bid on the home, investors are allowed to enter the bidding process. Your real estate agent will be able to find properties on daily bids that are open to investors.
Does HUD offer other programs?If foreclosures are not sold within six months, HUD will sell them for $1 each to approved nonprofit organizations and government agencies. Homes must then be used create housing for families in need or to benefit neighborhoods.
HUD offers special home purchase programs for teachers and full time law enforcement officers.
For a limited time on HUD homes in Ohio, there is an incentative with only $100 down and HUD will assist you with $2,500 towards closing costs, prepaids, etc.
This is a great time to look at HUD properties if you do not have 3.5% down!!!

Should I use a realtor when purchasing a new home from a builder?

A lot of buyers are unaware that they can have their Realtor represent then for a new construction.Another common Myth that the buyers have is that Builders offer lower price if the buyer buys directly rather than having a realtor in the deal. This is totally a Myth. Infact a realtor might be able to get you a better price than what you can negotiate with the builder. All builders have a realtor commission built into every home rather or not you use a realtor!! It is important to have a realtor that is representing you as the buyer.Here are a few advantages of using a realtor when shopping for new homes:
Purchase contract is a legal document and most of the buyers never pay close attention to what they are signing. There is no standard contract for new construction. Every builder has their own version of purchase contract. The buyers realize a problem only after they get into a dispute during the transaction. A realtor would explain the contract to you upfront and be able to negotiate changes to the contract to your advantage.Buyer is buying a house that will be delivered in future ( A few months later). Most of the buyers go directly to the builder and try to negotiate from the list price based on guess work and end up paying to the advantage of the builder. A realtor has more insight into what is going on in the specific market and can write up a contract that would protect you in a falling market when you are ready to takeover/close.The builders usually keep a considerable amount as upfront deposit. If you ever get into a dispute situation you have the Realtor as your professional advisor ro guide you through the situation and possibly resolve the situation by negotiating with the builder. It is always your Realtor's priority to protect your deposit.The sales offices of builders are staffed with "realtors/Real estate Agents" selling houses for them. If the builder is using a realtor/Agent to sell. Why not you ?Last but not the least. It does not cost you anything to have a Realtor represent you. It is time the buyers start realizing this free benefit and use it to their advantage.

What is this $8,000 tax credit everyone is talking about?

Buying a home is one of the smartest purchases you can ever make. One reason is that homeownership has many positive tax implications. The three most important sources of tax savings for home owners are the:
deductions for mortgage interest
deductions for real estate taxes
capital gain exclusion for the sale of a principal residence
The deductions for mortgage interest and real estate taxes reduce the annual cost of homeownership by reducing the home owner's tax liability each year. For example, a home owner with $10,000 in annual mortgage interest payments and real estate taxes and who falls in the 25 percent tax bracket could realize up to $2,500 in tax savings each year. Home owners who itemize their taxes can deduct from taxable income interest allocable to a first or second home for up to $1 million of mortgage debt and $100,000 of home equity loans. And most state and local taxes paid on homes are also deductible.

When the home is sold, the capital gain exclusion can again provide home owners a tax benefit. Under present law, sellers of a principal residence can exclude from taxation profits from the sale of a home, up to $500,000 for married taxpayers and $250,000 for single taxpayers. With capital gain tax rates expected to increase from 15 to 20 percent in coming years, these tax savings can be substantial.

Research by NAHB economists has estimated the tax savings for home owners for certain income and mortgage amounts. For a married couple with an income of $80,000 per year and an initial mortgage amount of $250,000, the tax savings from the mortgage interest and real estate tax deductions are estimated to save the couple more than $11,000 in the first five years of homeownership. Assuming the couple owns the home for twelve years, these savings grow to more than $25,000 over the time period. Combined with the capital gains exclusion, the total tax savings for the entire period of ownership exceeds $52,000.

For a couple with an income of $60,000 and an initial mortgage of $180,000, the five years tax savings total more than $6,000 and the total savings over a twelve year period are estimated to be more than $33,000.

Combined with the current $8,000 first-time home buyer tax credit (, available for qualified purchases on or after Jan. 1, 2009, and before Dec. 1, 2009, the tax savings from homeownership make buying a home today a rewarding financial decision.