If you’d prefer to listen to this post instead of reading it, click to be taken to the podcast: Earnest Money for HUD Homes

Coming up with an earnest money amount is usually a matter of negotiation when you are buying a home. You offer the seller $7.47 and they ask for $12,500.00. You want your buyer’s agent to be the one holding it, the seller wants their agent to hold it. At some point you’ll hopefully meet somewhere in the middle. But that ain’t how it works when you are buying a HUD home in Chattanooga.

HUD requires a set amount of earnest money depending on the price of the home. For offers that are $50,000 or less, $500 is what you’ll have to pony up. If the home you want to buy is more than $50,000 you’ll need to get me a cashier’s check for $1,000.

Regardless, it has to be a cashier’s check. And you have to have it signed, sealed & delivered as of the day the bid is being submitted, can’t wait to see if it gets accepted. Of course, if you are outbid, the earnest money will be refunded to you.

Contact me for more information about earnest money or any part of the HUD buying process. Or check out the HUD homes that are currently available.

New HUD listings used to be posted on Tuesday & Friday, now they can be listed any day of the week (big deal, right?). The biggest change is the period which is open to owner occupants only. HUD is firmly committed to encouraging home ownership and they are putting their money with their mouth is these days. As of now, the HUD owner occupant preference period has been extended from 10 days to 30 days.

There is still an initial 10 day bid period where all offers that come in during that time are considered to have been received at once. At some point in the near future, that 10 day period might be extended to 15 days - things are still shaking out over there at HUD and they are changing some of the rules around here and there, you know, just to keep you guessing!

If none of the offers they get within that initial period are acceptable, then it goes to a daily bid where each offer is only competing with the others that were received on that same day. Investors are still locked out until the 31st day. On that 31st day, if an investor submits a better offer than an owner occupant, the investor’s going to get the contract. All the way through day 30, an investor can’t even make an offer.

Bad news for investors but good news for owner occupants who don’t have to compete with an all-cash buyer on some of the screaming deals you sometimes find on HUD homes.

Check out HUD homes that are available right this minute!

Since 80/20 mortgages went the way of the dinosaur, there have been only a few options for those who don’t have the cash for a traditional 3.5-5% down payment. One of those is to purchase a HUD home via FHA.

Unfortunately, the powers that be don’t do a very good job of promoting this program. That’s one reason why you want an agent – like me! – who is experienced in dealing with the paperwork and (unfortunately, rather frequent) policy changes of these programs. Using HUD’s standard offer to allow you 3% of the purchase price toward your closing costs, you might be able to purchase a home for little more than the required initial  earnest money deposit.

If you’re one of the many who can afford to own your own home but can’t afford the down payment to buy your own home, HUD’s $100 down program might be a great way for you to experience the joys and tribulations of owning your very own piece of America.

Contact me for more information about this or any other HUD program.

Originally posted at Chattanooga HUD Homes

When HUD takes over a property, they come in and have the locks changed. The key that fits your new HUD home, also fits every other HUD home in the area (in the country?). So believe me, you don’t want to leave your locks keyed that way.

After your closing, I’ll go with you to your new castle and unlock the door for you. From there, it’s up to you to either have a locksmith come out and rekey the same locks, or replace the doorknobs and deadbolts with new ones of your choice. Most of my clients opt to just replace them. The doorknobs that HUD uses are shiny brass that don’t always fit into the decor you might have in mind.

One of the things that usually befuddles HUD buyers is the repair escrow. In a HUD listing you’ll often (but not always) see the term ‘insured with escrow $xxx’. That x amount of dollars is the amount that the appraiser thinks will cover the repairs necessary to bring the house up to FHA standards. In a typical home purchase involving FHA financing, you’ll have to have the repairs done before closing. But HUD houses get a special deal – repairs don’t have to be done until 30 days after closing. But because they don’t just take your word for it that they’ll be done, your lender tacks on the amount budgeted for the repairs and puts the money into an escrow account. These are the highlights for how that works:

• The escrowed amount is NOT included in the price of the house. If your offer of $100,000 is accepted and there is a $1,500 repair escrow, you are eligible for a loan of $101,500* (purchase price plus repair escrow).
• You’ll be given a list of the exact repairs required and after closing you’ll hire someone to do the repairs. If you’ve got mad skills you can do them yourself.
• If you want to go above and beyond – e.g. repair to HVAC is required and you want to just replace the whole shebang – you can do that, just make sure you can get it done within the 30 day limit. FHA doesn’t really care how you make it happen, they just want it working.
• Once the repairs are complete, the appraiser will come back out and check to make sure that you or whomever you hired has done them and that they’re done properly.
• After the appraiser signs off that the repairs are complete, you’ll submit your invoices to the escrow holder who will then pay your contractor. Some contractors will not wait to be paid. If you pay them up front you’ll need to provide proof that they’ve been paid and then the escrow holder will reimburse you.
• If the cost of the repairs goes over what is in escrow you’ll only be receiving the amount that was budgeted. Anything extra comes out of your pocket.
• If the cost of the repairs is less than the amount in escrow, you’ll be reimbursed for the actual cost. Anything over that will be credited back to your loan amount. Using the sample amounts above, let’s say you only pay $800 for the repairs. You’ll be reimbursed for the $800 and the remaining $700 will reduce the amount you owe. Now your loan amount will be $100,800 (purchase price plus amount actually paid for repairs).

And thus, another chapter in ‘How to buy a HUD house’ is written. Any questions? See me after class.

*For clarity’s sake I’m not considering any fees or down payments that affect the eligible loan amount. Those belong in a whole ‘nother can of worms.

**This is how buying a HUD house in Chattanooga and the rest of SE TN works. Could be different in different places.

It isn’t ALL good news though. With a typical seller (even regular old bank owned foreclosures), they’ll take care of making sure that the utilities are turned on for you. All your inspector needs to do is walk in the door with his clipboard and commence to inspecting. Not so with HUD.

Here are your downsides:

• You’ll need written authorization from HUD before turning on the utilities. If you are doing your inspection between October & March you’ll have to include a check for $75 to cover the cost of re-winterizing* the house after you’ve de-winterized* it for your inspection
• Once you’ve got your authorization, you’ll need to have the utilities turned on in your name
• Once you’ve finished your inspection, you’ll have to have the utilities turned back off until after closing

In addition to the whole utilities hullabaloo, there are also some limitations regarding using your inspection contingency (while also getting your earnest money back). Most sellers will accept just about any inspection related reason as justification for terminating the contract. HUD requires that:

• Inspection issues must be diagnosed by a licensed home inspector (not your cousin Vick even if he’s a general contractor)
• Problems found must be significant and structural or mechanical in nature. Broken windows, one non-working outlet, & holes in the drywall don’t count. It’s got to be something like bad wiring throughout the house, cracked foundations or bad sewer lines
• Repairs needed can’t be something that was already disclosed on the property condition report that HUD provides (you can view these reports at www.BidSelect.com)

Thus concludes the Inspections chapter of ‘Required Reading for HUD Buyers.’

*Winterizing – turning off the water, draining the water heater and blowing the water out of the pipes.  **De-Winterizing – turning on the water, filling up the water heater and filling the pipes with water (as you might expect given the definition of winterizing).  ***Your inspector will not look like the guy in the picture up there.