Demystifying HUD Homes for Real Estate Investors

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The following was written by real estate investor, educator and guest blogger Larry Goins.
 

Foreclosures are popular with many real estate investors but there seems to be a bit of mystery surrounding HUD homes.  These are foreclosed properties but they’re properties purchased with a specific type of housing loan.  FHA loans have been helping people become homeowners since 1934. How do they do it? The Federal Housing Administration (FHA)—which is part of the Department of Housing and Urban Development or HUD—insures the loan, so your lender can offer you a better deal such as low down payments, low closing costs, and easier credit qualifying.

When a lender makes an FHA loan it is basically being insured by HUD. What this means is that a bank or mortgage company (not HUD) is lending money to a homeowner to purchase a home. The borrower pays the money back to the bank in monthly payments and hopefully, doesn’t fall behind.

If the homeowner does fall behind, rather than foreclosing on the property themselves like most mortgage companies would do, the bank will file a claim on the insurance policy they have, since HUD insured the loan. Then once the bank has been paid for the loan they made, they hand it over to HUD to foreclose (repossess) and try to resell again on their website through a Realtor that is approved to list HUD homes. From that point, the bank doesn’t have to deal with getting the house off of its books.

The property then becomes what we call a HUD home as opposed to a regular bank REO, or foreclosed home. These homes are made available for sale on HUD’s website through certain agents who have been approved by HUD.

They also winterize the house to make sure that no pipes burst during cold weather and secure it with locked doors and boarded windows, if needed. But they don’t do any repairs to it prior to listing it for sale. They don’t want to spend the extra money to do so. HUD has done some repairs in the past, but as of right now I do not know of any properties that they are making the needed repairs on before listing them for sale.

This is why there are such great opportunities for you to buy at low prices—because you are among a small group of people willing to take on a house needing repairs. And the more repairs it needs, the fewer people there are willing to buy it. So keep this in mind when you are scanning for deals to bid on. Also, I think it is important to note that some of the properties HUD sells do not need much work at all, as you can see with the examples in my book, HUD Homes Half Off.

HUD Homes really are a hidden gem of a real estate investment.  They make wonderful additions to any portfolio and are easier, simpler, and higher quality options when compared to traditional foreclosures.  I hope you have enjoyed this article about making money with HUD homes. This is just a small portion of the ways you can make money with HUD homes.

About Larry Goins
Larry Goins is an author, trainer and national speaker. He has written several books on real estate investing. 

*Larry Goins is not affiliated with Equity Trust Company or its affiliates.  The information provided is for educational purposes only and should not be construed as tax, legal, or investment advice.  Whenever making an investment decision, please consult with legal, tax, and accounting professionals.