Monday, October 10, 2011
What are “HUD homes,” and are they a good deal?
HUD stands for U.S. Housing and Urban Development. The homes that HUD sells come into HUD’s possession as a result of defaults on FHA (HUD) insured mortgages, so they are like bank owned/REO homes but the bank in this case is a government entity.
They can absolutely be good deals, but it depends on the condition of the house and how much money you have to spend to fix it. There are many HUD homes that have very low prices but that is usually because the previous owner did not maintain the home (probably because they didn’t have the money to spend on regular maintenance as well as fixing problems. It makes sense that if they stopped paying their mortgage and knew they would lose the house, they also stopped paying other house expenses.) So, a good inspection is key to knowing whether or not the price is a good deal. If the inspector discovers that there are structural issues and roofing issues (and you will probably hire a roofing contractor and a structural engineer to give you their opinion on the extend of the damage and an estimate to repair) that will cost $40,000 (for example) when the asking price is $150,000 then it is not a good deal when the other houses in the neighborhood are selling for $190,000. In many cases the homes will not have any appliances, so budget about $5,000 for a new stove, fridge, dishwasher, microwave and washer/dryer. (You could certainly pay more, but let’s assume you’ll be buying the basics.) In this example you buy the house for $150,000 and put $45,000 into it for a total of $195,000. Since the neighbor’s houses are selling for $190,000 then it’s not really a good deal even if the rest of the house is in mint condition, because you have to spend a lot of time and energy hiring the roofer and the engineer to do the work needed. However, if the neighbor’s houses are selling for $250,000 and you paid $195,000 for the house then YES this could be a good deal. The key to knowing the difference is teaming up with a Realtor. Realtors have been looking at houses every day and they know the neighborhoods, the school districts, the contractors to recommend, etc. Find a good one and stick with them. Tell them all your thoughts, questions, fears and desires relating to the home you want to find and they will be a priceless resource. They will save you so much time and energy…and hopefully make the process fun! As a Realtor, I know that navigating the real estate market can be intimidating, so I try to keep it fun and exciting. When you’re ready to start talking about homes for sale in or near Steamboat, CO give me a call and we’ll find the best match for you. 970-819-1131