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What is a Government Home?
Why are Government Homes affordable?
How much money do I need?
How do sealed bids work?
If I submit a bid and don't win what happens next? Do I lose money?
Do I have to be a veteran to qualify for a VA home?
Are these properties available to investors?
When do we bid? Do I have to be there?
What is the physical condition of these properties?
Can I submit the bid myself?
What are the advantages of buying a HUD or VA home as a "first-time" investor?
What are the disadvantages?
What is an Agent-on-Call?
A government foreclosure home is offered
for sale by one of two federal agencies (HUD – Housing and
Urban Development www.hud.gov
or the VA – Veterans Administration homeloans.va.gov/homes.htm)
using a sealed bidding process. These homes were originally purchased
using a FHA insured loan or a VA guaranteed loan. The property was
foreclosed by the lending bank and then purchased by the government
and transferred to the Real Estate Asset Manager to represent the
government in selling the property.
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Generally, homes that are owned by the
government were purchased through agency sponsored loan programs.
These programs offer maximum loan amounts and thus fall within affordable
limits set by the government. To sell these properties quickly,
the government provides down payments that are 3% or lower. You
may even find $500 down payment programs and on occasion, the VA
will sell properties with $0 down payment. Investors can purchase
a VA Home in Florida with a $1,000 down payment
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This will depend on your budget and
on the purchase price. VA homes have a fixed down payment and the
VA will finance the property with a fixed rate loan, which is often
lower than typical loans. The VA Loan does not charge PMI,
which will result in a lower monthly payment. The VA Loan is available
to everybody, not just veterans. However they will not finance the
closing costs which will average 4% to 5% of the purchase price.
Currently, HUD homes can be purchased for 3% down payment with FHA
Insured Financing or Fannie Mae Community Home Buyers Program. You
may also qualify for the FHA Access program, which will further
lower your out-of-pocket expenses. You may use many different kinds
of loans as well, although, it is generally easier to qualify under
a government sponsored loan. Contact our local FHA mortgage lender
to identify the very best loan option for you.
With properties marked "HUD-UI",
the down payment can be much higher, especially if major repairs
are needed. In addition, you can count on HUD to pay some of your
closing costs (up to 3% of purchase price).
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The government is required by law to
sell publicly owned property in a fair manner. Both the VA and HUD
have adopted the sealed bidding process. This type of auction provides
anyone with an equitable chance to win an affordable home.
Unfortunately, it is not as easy as it sounds. Developing a successful
bidding strategy is very important. Often, bids are won by only
a small amount and it might take you up to four attempts on different
properties to get the house you want at the price you can afford.
There are usually four to six bids submitted on each property. To
be successful, you have to know when and where properties become
available. In most regions, you have less that four days to locate
and bid on a HUD-owned property and two weeks on a VA-owned property.
With a HUD bid, you will need a signed purchase agreement; a letter
of commitment from an approved FHA lender; and, a certified cashier's
check for $1,000 as an earnest deposit. If the asking price is under
$50,000, the earnest deposit is $500.
With a VA home, you need a signed purchase agreement; a credit application;
and, a $500 deposit on their seller finance program and $2,000 earnest
money deposit for cash or outside financing.
These requirements and amounts will vary by region across the country.
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No, the earnest deposit is returned
if you don't win the bid. Be prepared to bid on at least three properties
to get the one you want at price you can afford.
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No, the VA does not require the purchaser
to be a Veteran. However, you must be an owner occupant to qualify
for the low down payment. Investors may purchase in the Northern
California area with 10% down, but, in many parts of the country
the down payment is much lower. In Florida, for example, the down
payment is only $1,000.
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HUD homes can only be purchased by owner
occupants during the first 11 days it is listed. If the property
does not sell, it will be eligible for investors on the 11th day
of the listing. Investors may purchase with a FHA loan and a 25%
down payment. This requirement will vary by region. If an offer
is submitted by an investor posing as an owner occupant, the agent
and investor may be subject to a fine of $250,000 and 2 years in
jail.
VA homes are always available to qualified investors. The interest
rate is fixed at the posted rate and there is no mortgage insurance
requirement.
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You will need to submit a bid before
the deadline specified in the listings. In Northern California,
this is Tuesday night at 11:59PM. Bidding is a very personal and
confidential activity. You should arrange to meet your PublicRealty
professional to complete the necessary paperwork which is not complicated
and can be completed in less than thirty minutes. The PublicRealty
professional will submit the bid. You do not need to be present
during the actual auction.
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HUD will classify properties as Insured
or Uninsured. This distinction determines whether a property is
eligible for FHA financing or not. If you see that a property is
FHA Insured ("HUD-IN" or "HUD-IE"), it
meets the required minimum standards, is in fairly good condition,
and is eligible for a FHA loan.
If the property is listed as uninsured ("HUD-UI"), the
property needs work and did not meet these standards. This could
mean anything from minor carpet and paint repairs to major plumbing
and foundation work.
Be aware that HUD and VA will never make any warranties or guarantees.
All government properties are sold "as is". It is highly
recommended that you obtain an independent inspection which will
cost $250 - $350 and will examine plumbing, electrical and heating
systems, foundation, roof, and overall condition.
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No. HUD must approve the real estate
organization and broker that you are working with. A registered
HUD broker will be very helpful to you in identifying financial
options and developing a successful bidding strategy. Often, bids
are won only by small amounts. The team of Agents-on-Call SM
at PublicRealty are ready now to help you purchase an affordable
home.
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1. Immediate results. You will
know within a few days if you have a viable transaction. There is
new inventory each week and the game is always moving. If you are
a dedicated investor you will get your share.
2. Low Down payment. As an investor buying a VA property
with seller financing, you will have a low fixed rate loan with
no PMI (mortgage insurance). This increases your cash flow potential
as a rental unit.
3. Backup offers. A good offer in second or third place may
be accepted within two weeks of sale. 10% of first place offers
fall out, so there is a small chance of winning in second place
with a good price.
4. Purchase prices below $75,000. These numbers work for
most new investors. Because of the lower prices, there is less financial
risk. First-time investors are more confident in taking the risks
required to purchase investment properties. There is always risk
in any real estate transaction (see Disadvantages
below).
5. Mobility and Internet technology makes it easy. You can
own a public foreclosure anywhere. Current technology offers fast
and easy-to-manage real estate transactions.
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1. Multiple bids force the purchase
price up.
2. Good deals generally require a larger down payment.
3. If you win the bid as an investor, and you fail to close the
deal, you will lose your earnest money deposit. You are purchasing
the property "as is" and you are not allowed inspection
or finance contingencies. There are always exceptions and each region
has different policies.
4. 80% of the properties need work and/or located in below average
neighborhoods. But the other 20% could make you very happy as a
real estate investor.
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PublicRealty agents that you request
to represent you in your public foreclosure transactions are highly
trained, licensed real estate agents with an in-depth understanding
of the public policies and programs that govern the sale of public
foreclosures. Using the latest communication technologies, the Agent-on-Call
is able to respond to your request within minutes and can provide
personal consultation regarding real estate procedures, winning
strategies, and home ownership. The Agent-on-Call
receives a commission directly from the government agency for completing
the sales transaction.
Our network of agents is always ready to assist you, because good
information, timing, and quick response are the ingredients for
purchasing at the best price. Though you may not meet the same person
each time, you will be able to depend on our personalized and reliable
service that will deliver a winning bid at the lowest price possible.
When you use Agent-on-Call,
we ask that you use PublicRealty as your personal broker for your
real estate transactions.
Copyright © 2000 PublicRealty.com.
All rights reserved.
PublicRealty, Inc. 11886 San Pablo Ave, El Cerrito, CA 94530
Voice: 510-232-7777 Fax: 510-232-9477
info@publicrealty.com
Revised: 04/12/2001
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