Austin Area HUD homes - Avoid the Common Mistakes That Cost Time and Money

I love HUD homes. Why? Because a HUD home is a great opportunity to get a home at below market rate and with a very strict process. Hang on, did I just say I like the strict process? Yes! Process is great - although it is inflexible, once your Realtor® figures out how it works, you can enjoy smooth transactions. So first off a little background, and then a few comments on the process here in the Greater Austin Area.

For some background on HUD homes check out my article The Low Down on HUD Homes. To summarize, HUD homes are homes that have been foreclosed upon, which are now available through the local asset manager (Southwest Alliance for our area). They are pre-appraised, and made available to purchase through HUD approved Realtors®.

Every time I do a HUD transaction, my clients get excited. Some of the homes need items of repair (funds held in escrow to fix the property), but many have no major defects. My most recent bid was for a Lennar home in excellent condition - it had only been occupied for a little over two years, and aside from a few areas of paint touch up and a missing appliance in the kitchen, it was move-in ready. Our winning bid was also around 8 per cent below the sales price of similar homes in the area!

There are a few pitfalls to the process, so here's a list of the top five things to be wary of in the process with Southwest Alliance:

1. Lending on a HUD Home. Even though a buyer may be approved for an FHA loan, there may be some restrictions from the lender on the home type. For example, the HUD owner occupier has to sign an affadavit to say that they will stay in the home a certain period of time. This is to prevent people "flipping" HUD homes. This requirement can be contrary to the lender's conditions, and can result in a HUD home being unacceptable collateral. Make sure your buyer's lender is crystal clear that they're buying a HUD home!
2. Earnest Money. The earnest money amount is typically $500 or $1000. It cannot be in the form of a personal check - it has to be certified funds - cashiers check or money order. The asset managers are very strict on time lines, so if you don't deliver the earnest money in time, your successful bid will be rejected and you have to re-enter bidding.
3. Inspection. Though there is a property condition report as part of the bidder's information package, this is not a home inspection. To get a home inspection, your buyer will need to apply to get permission to turn on the utilities, turn them on for two days, and get a regular home inspector who must be accompanied by their buyer's agent.
4. Closing. The closing agent that Southwest Alliance uses for Central Texas homes is in San Antonio. There is a requirement that the buyer signs within 50 miles of the closing agent's office, and Austin, Leander, Cedar Park etc are outside that 50 mile radius. Prepare for a trip to San Antonio.
5. Investors buying as owner-occupiers to rent out the home. This isn't permitted, and if you or your client fraudulently purchases a HUD home, you're both in big trouble. The aim of the scheme is to increase home ownership, so play fair and you won't be fined!
   

Buying a HUD home requires a considerable amount of extra work on the part of the buyer's agent, so make sure to work with a Realtor® who knows the system and will dilligently follow the process!

Garreth Wilcock is a HUD Approved Realtor® who can help find and buy homes in the Greater Austin Area. He blogs about Austin Real Estate.