Why is buying a government property so different?

By: Mia J. Johnson

Why is buying a government home so differentThe best advice I’ve received over the years is…. “Be prepared for the unexpected” and this is certainly true if you are thinking about buying a foreclosed/REO (real estate owned by the bank/lender) home. Most buyers become flustered when I ask them if they have been pre-approved for a loan. I understand how frustrating this can be. The caller or potential buyer just wants to take a look at the house and then make a decision. The reason I ask this is two-fold—first, you don’t want to look at a property you have no chance of buying because you or the house can’t qualify for the loan; and second, HUD requires that a pre-approval letter be sent with the contract package within 48 hours of the offer’s acceptance. So if you are pre-approved you are probably ahead of most of the buyers that would also be interested in purchasing this “HUD” property. This puts you in the driver’s seat when placing a bid. Even if you don’t find the house right away, you can always call your lender and have the lender update that letter for you with very little effort from both parties.

When you’re buying a bank or government owned property, you are more than likely going to be in a bidding situation. Think of it as a sealed bid auction. The Department of Housing and Urban Development is in the business of promoting home ownership and attempts to help buyers that are planning on making the house their personal residence through the bid process. There is an owner occupied period when the property is first listed on the www.hudhomestore.com website. This gives you an opportunity to place a bid before investors, which is advantageous because investors often times offer cash. All bidding is done online by a HUD registered agent, so you won’t know what other people are bidding. My recommendation to my buyers is to decide what is the most you want to pay for this property and not be disappointed if you lose out on the bid. Essentially, I’m asking you to decide what your “walkaway price” is. You don’t want to find out you lost the property because another buyer out bid you by a dollar. I’ve seen it happen and it’s some of the worst news I’ve had to deliver to my clients. With HUD as the seller there are no emotions involved in the selling process, they are concerned with what is the best net offer to them. So it does not matter if you pay cash or are getting a loan the best acceptable bid is going to win!

Because HUD has such a quick turnaround period, you have to be ready. My general practice is to have you come to my office to make your bid. I will ask you for your pre-approval letter and a cashier’s check made out to the Title Company that has been approved to close HUD properties. (Your agent can advise you on this). It takes about 30 minutes to fill out the paperwork which consists of a one-page contract with 18 pages of addendums. Since we are prepared if HUD accepts your bid the next morning, I am ready with my FEDEX package filled with everything that is needed to process and get you a signed contract. You don’t want to be disappointed that you got the bid and find out it was cancelled because the package did not arrive in the 48 hour allotted time. If you don’t turn in your paperwork in time, HUD may award another bidder the property if there is a back- up offer.

Once we have the signed contract, we start the loan and closing process. This is a whole other topic that I will discuss in the next couple of weeks. So when you’re ready to jump into the housing market, make sure you are prepared with your pre-approval letter. This step is especially important in purchasing HUD homes, but it’s always great to know exactly how much you qualify for and what your monthly payment will be when house hunting. Sometimes it is not as important how much you pay for the house, but how comfortable you are with your monthly payment. I remember buying my first house and asking the builder how much it would be to make our one car garage a two car garage. His reply was $5,000! The sticker shock of that made me stick with my original plans. However, in hindsight I could have talked to my lender and learned that an additional $5,000 would only increase my monthly payment by about can of coke every month.  Any Boy Scouts will remember the importance of being prepared and channeling them in your home-buying experience will simplify the process for all!

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