HUD REOs: Six Things Every MLO Needs to Know By Jeff Mifsud his article is written for, in my opinion, some 99 percent of the mortgage loan originators who do not specialize in providing financing for U.S. Department of Housing & Urban Development (HUD) real estate-owned (REO) purchases, but over the course of time, are likely to come across a few buyers who may want to purchase HUD homes. The purpose of this article is to provide insight into the more important aspects of processing these loans. This will assist you in having greater success when working with buyers of HUD homes.
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A significant percentage of these homes are in disrepair HUD homes are generally sold as-is, with little to no repairs done on behalf of the buyer. Given this reality, HUD tends to price their homes in order to attract cash buyers who don’t need your services. On occasion, you may have FHA buyers who want to by a HUD home, but the condition of the property may not meet the FHA Minimum Property Requirements. In such an instance, having the ability to do 203(k) financing is crucial since the 203(b) doesn’t always work. Having access to the (k)s, however, is quite different than having the knowledge to process and close them. Suffice it to say that if you have to flip a (b) to a (k), don’t go at it alone. Get help from an expert in
Implore your clients to get a home inspection This is, of course, good advice for all homebuyers, but critical in these situations–yes, even when the Federal Housing Administration (FHA) appraisal performed by HUD doesn’t state any deficiencies. HUD does REO appraisals on their HUD listings and forwards these appraisals on to the buyer’s lender when requested. Lenders can underwrite from this REO appraisal and are responsible for making sure the property meets FHA’s Minimum Property Requirements (MPR) and may need to request a copy of the buyer’s home inspection to learn more about the property. The last thing you want is for a buyer to purchase a home, move in, and then discover an expensive repair that needs to be made.
The highest and best bid wins I use the term bid because all offers on HUD homes are done online through HUD’s Web site, HUDHomeStore.com. Knowing this, you can help your buyers’ real estate agent structure the transaction to win the bid. HUD likes to sell
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structuring the (k)s, because the last thing you want is a horrible experience that will guarantee that your clients will never refer business to you!
homes to primary occupant buyer submits a bid pants, so if you have a on more than one prophomebuyer who is trying erty, the bid that proto buy a HUD home as duces the greatest net their primary residence, return to HUD will be you have an advantage. accepted while all other HUD wants to earn as bids from that buyer will much as possible on the be eliminated from consale, so one strategy, if sideration. However, if the buyers can afford it, the prospective ownerwould be not to ask for occupant buyer has subHUD to pay for any of the mitted the only accept“One of the greatest buyer closing costs. able bid on another aspects of our recent property, then that bid Additionally, if the clients housing crash is the can afford it, have the must be accepted and availability of buyer pay a portion of the all other bids from that affordable housing. real estate agent’s combuyer on any other For homebuyers mission directly in order properties will be not be in today’s market, to decrease the amount considered. the crash has been HUD has to pay the buyer a blessing.” agent (HUD will pay three Earnest money percent to the buyer deposits are not agent and three percent of the buyer automatically refunded closing costs). Should the buyer’s home inspection be For example: On a $100,000 offer, unsatisfactory or the loan be denied, instead of asking for the full $3,000 (three HUD does not have to refund the percent) toward mortgage closing costs deposit as would be the case on a reguand $3,000 (three percent) for the buyer lar FHA purchase. HUD determines agent commission, ask for $0 toward their refunds on a case by case basis, so closing costs and only $2,000 in buyer you must make this clear to your client agent commission (have the buyer pay at the time of pre-approval and do not their agent $1,000 directly so they receive rely on the real estate agent disclosing the full commission for their services). this information. This is a winning strategy and few real estate agents will use this structure, but HUD homes are usually priced very will instead, submit the bid with the full low and you will have an opportunity to three percent commission and three per- help first-time homebuyers purchase a cent toward closing costs. home that will give them a very affordable payment. One of the greatest aspects of our recent housing crash is the availYou have to order ability of affordable housing. For homea new case number Each HUD home will have a current buyers in today’s market, the crash has case number attached to it. Since it was been a blessing. I have found that the FHA financing that was defaulted on to most satisfying experiences in my career produce the foreclosure. However, you are those assisting a family achieve the will have to order a new case number goal of homeownership, especially when for your buyer because it will be new they thought it was out of their reach. FHA financing. When entering the case There’s nothing more gratifying than witinformation in FHA Connection, the nessing the joy on their faces, sometimes lender should select “Real Estate- accompanied by tears of joy, when that dream becomes a reality. Owned” for the Processing Type. Go FHA!
A buyer can submit offers on multiple HUD homes at one time
Web: www.appraisalsanywhere.com
Real estate brokers may submit multiple bids on an individual property, as long as each bid is from a different purchaser. If a buyer submits multiple bids on the same property, only the bid producing the highest net return to HUD will be considered. If an owner-occu-
Jeff Mifsud is founder of Michigan-based Mortgage Seminars LLC, a former FHA underwriter with 15-plus years of experience originating FHA loans, an FHA expert for LoanToolbox.com and creator of The FHA Originator, a monthly FHA newsletter. Jeff may be reached by phone at (248) 403-8181 or visit www.MortgageSeminars.com.