USHUD And The Truth About Buying a Foreclosure Part I

Foreclosures are not a prevalent as they once were but they are still available in most real estate markets. The truth is that most people who look at foreclosures as possible purchases don’t actually buy a foreclosure. This is for a couple of different reasons that we will cover in this series on “the truth about buying a foreclosure”

Foreclosures represent several different obstacles that require different approaches than buying a conventional property on the resale market.

The first obstacle is to find the real estate agent that knows the foreclosure market and how to navigate the course without trying to use the same tactics and options that are common in the resale market but are not reflective of the foreclosure market. Using the state approved real estate contract on HUD or VA homes will lead to frustration and disappointment as both HUD and VA have their own contracts and will not accept a traditional real estate contract. If the agent is not familiar with the HUD or VA contracts they can easily get confused and miss out on the opportunity due to the lack of preparedness.

Secondly the loan officer has to know the many different ways to finance a foreclosure and the benefits of financing the HUD or VA home through HUD or VA depending on which entity is in title to the property. If the foreclosure is a HUD, it is always better for owner occupants to finance using FHA programs. By using the existing HUD/FHA programs the buyer can bypass the need to pay for a new appraisal as the appraisal that was done by HUD will suffice and there is no confusion. If the HUD property goes through a different financial program problems are likely to arise in the appraisal of the home. Problems could include but are not limited to missing appliances and condition of the home. Where HUD provides repair escrows for needed repairs, other banks and lending institutions are not as flexible as they are not prepared to finance homes that don’t meet their more stringent requirements and they have no box to check for repair escrows. This means that the buyer will be stuck with a contract on a home they cannot finance many of the times.

VA is similar to HUD in that they have their own contract and will be far more flexible financing their own home. Not to mention that when financing a VA home the buyer doesn’t need to be a veteran in order to qualify as a veteran and therefore the purchase requires no money down. This is a great opportunity that will be missed if the lender tries to finance a VA foreclosure via any other method other than the Veterans Administration.

These are just some of the reasons that most people don’t buy foreclosures. In fact over 90% of the homebuyers that visit buy a traditional home.


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