hi, it's mark ferguson with invest four more.i’d like to thank you for watching another one of my videos on real estate investing.today i'm going to talk about how to buy a hud home, how to find them, and how to bidon them. a little bit about myself: i've been a licensed realtor since 2001, i have beena hud listing broker the last four years. i think we've sold over 400 hud homes. i amalso a real estate investor. i own 11 rental properties and i've flipped over 100 houses.i personally cannot buy hud homes because i'm a listing broker, but i can definitelyshow you how you can find them, find great deals, and learn a little about the processof how hud works. so right now you're looking at the home pagefor hud homes. hudhomesstore.com. so make
sure you type in that correctly if you wantto look at hud homes. if you misspell it a little bit, you might go to a different websitewhich pretends to be hud but is not, and might try and give you a nasty virus or somethingon your computer. but right here, there’s a couple ways to search for hud homes. youcan click on the state, see any hud home for sale in your particular state—quite a fewwill pop up. or, down here where it says search properties, you can select the state here.that's the only field that you have to enter, is the state. and then you can enter any oneof these fields to narrow down your search a little bit. so i will enter the county iam in to pull up hud homes for sale in my area. click search, and there is one in myentire county. so reo and hud is down a lot
in my area. a couple years ago, there'd probablybe 10 homes for sale my county, or even more. but this only shows homes that are activelyfor sale. so what that means is they are on the market, can be bid on, and do not havea contract on them. and soon as hud receives an acceptable bid, or they take the propertyoff the market for a price change, or some other reason, they pull it off hud home store.so if you want more information on this particular property, click on the case number and itwill pull up this page, which will show you more information on the property. a few things to know about hud: they havedifferent bid periods for different buyers. so if you are an investor, you cannot bidon hud homes right away. there’s a few differences
on the bid periods; we’ll go into it. butthe first one we’re going to talk about is the fha-insured bid period. if you're lookingright over here at my cursor, it says “insured with escrow.†that means it is fha insured.there is a 10 day initial bid period where hud collects all the bids and they will acceptone at the end of those 10 days if it meets their guidelines. and there's a 15-day owner-occupantonly bid period. so for the first 15 days, only owner-occupants can bid, unless you’rea nonprofit or a government agency. you can see that right up here, that eligible bidders.now, to know when the bid submission deadline—this would be for the initial 10 day bid periodon this property—it’ll tell you 2-16, and then it will say three days, 10 hours,and one minute left until that bid submission
deadline is over. so hud takes all the bids they get, reviewsthem all at once during this bid period. then the next business day they will accept oneof those bids if it meets their guidelines. so they have certain guidelines, certain dollaramounts those bid have to meet. and hud only cares about the net price to them. they don'tcare it it’s cash, if it’s financed—it could be a 203k full-blown rehab loan versusa cash deal, and if the 203k loan is one dollar more net to hud than the cash deal, they willtake that 203k loan. so there's no advantage to doing cash or a load with hud. all right. if this was fha-uninsurable, thebid periods would be different. there would
be a five-day initial bid period for owner-occupants.and a five-day sealed bid period when they collect bids. so hud would take all the bidsthey get in those five days, look at them on the next business day, and accept one atthat time if it met their requirements. on the sixth day, investors could submit bidswith an fha non-insurable. it’ll say right here if it wasn't injured. and on the housesthat are insured, like this one, it’s the sixteenth day after it has been actively forsale that investors can bid. now again, i said actively because if this home goes undercontract, say on the eleventh day, as soon as it goes under contract the active dayson market stops according to hud. for example, it goes under contract on the eleventh day,the buyers cancel their contract two weeks
later because they found something wrong withthe home, it would come back on the market as if was only for sale for 11 days. and investorsstill could not bid because it has to be on the market 15 days actively until they can.for investors to know when they can bid, you want to look at the period deadline. and theperiod deadline is right over here. this is the last day owner-occupants can bid tillthe next day, 2-19, would be when investors can bid on this home. now if you try to bidon it before then, the hud system will not let you do it. let's talk a little bit about bidding. ifyou want to bid on a hud home, you have to have a real estate agent submit a bid foryou. buyers cannot submit them directly. that
real estate agent has to be registered withhud. they have to have what is called a naid number, or their office does, and then individualagent has to register on the hud website, which they can do right up here very easily,takes about five minutes. and they can register on the site. if their office does not havein an naid number, that can take four to six weeks to get from hud. right up here, it saysnaid application. so if you’re a real estate agent and your office does not have one ofthese, you need to get one right away. it's free, it doesn't cost anything, but you haveto apply with them. and it will take some time to get it. and until you have that, realestate agents cannot bid on hud homes. there's no way around that. if you have a buyer whowants to buy a hud home and you don't have
this, you will have to refer them out to anotheragent, somehow get another agent to help you out who is registered with hud. all right. once you have your agent who canbid on a hud home for you, all bids are submitted online. technically, you don't have to signany contracts, provide a pre-qual letter, or earnest money to bid on a hud home. however,it is highly suggested that you have your earnest money and your pre-qual letter readyto go, because if your bid is accepted, you'll have 48 hours to get it to hud. and that'sa real copy, not emailed, but physically delivered to hud. in some cases, you may have to overnightit to a different state because the hud asset manager may be located in texas, and you couldbe in california. so if you don't have your
pre-qual letter, your proof of funds letter,ready to go, you could have your bid cancelled if you're not getting that package in on timeto hud. again, your real estate agent can help you submit that package to hud, theywill assist with that process, but you need to have your pre-qual letter, your proof offunds, ready to go. and then you've got to have certified fundsfor the earnest money. that means you can't write a personal check. you've got to havea certified check, a money order—something that proves you’ve got the money. and thatalso has to be sent either to hud or the listing agent’s office, depending on the asset managerwho’s listing the house. again, your real estate agent can help with that once yourbid’s accepted. you need to make sure you
have certified funds available, and the pre-qualletter, or proof of funds letter. now, how much will hud accept? well, thatdepends on the market you're in. i'm in colorado; we have a very competitive market here. veryfew listings, very few reos. in my experience, hud will take about 10 or 11 percent lessthan the list price net to them. the word net is very important because that doesn'tmean if you offer them 135, they will automatically accept it, because it’s within, you know,that 10 percent, because you have to factor in the real estate agent commission, and anyclosing costs you want hud to pay. the listing agent commission is automatically 3 percenton hud homes. so if you're offering, you know, below list price, once you take out that 3percent, hud will accept about 7 or 8 percent
less than the list price. the buyer's agentcan make up to 3 percent on hud homes as well. they don't have to take that much, but theycan. so if they take 3 percent, that means you're paying 6 percent total commission.hud will now take, you know, 4 to 5 percent less than the list price after you factorin commissions. and, if you ask hud to pay 3 percent of your closing costs, then thatalso is deducted. so now you're down to 9 percent total cost hud is paying. you're goingto get, you know, 1, 2 percent maybe less than list price net that hud will accept. it is also important to know hud does notpay all the customary costs that many other sellers pay. they do not pay title insurancefor the buyer, they do not pay half the closing
fee for the buyer, they do not pay to haveutilities turned on for your inspections—those are all costs that the buyer incurs. the buyerwill have to get utilities on in their name to do an inspection. they will have to payany deposits, they'll have to pay any costs or fees while those utilities are on. it isthe buyer's responsibility to get the home de-winterized if it's in the cold months andthe home has been winterized. and they may have to pay hud 150 dollars to have the homere-winterized as well, after their inspection. so that 150 dollars, it’s paid before theinspection. after your inspection is done, hud’s company comes back in, re-winterizesthe home, blows the pipes out, puts antifreeze in the toilets and p traps, makes sure thehome won’t freeze again. so there are many
costs with hud that are not there on a typicalpurchase. let me go back real quick again to what hudaccepts. i mentioned 11 percent in my area. in some areas where there’s less competition,more reos, i've heard of them taking 20 percent less than list price right away. and anotherthing to note: if the house is in aged listing, which means it's been on the market more than60 days—again, that’s actively on the market. if it's been under contract, thathalts that process. but if it’s been available to bid on for 60 days, hud may take less thanthat original 11 percent as well. so it doesn't hurt to submit bids, even if you don't thinkthey’ll be accepted. sometimes hud will counter you, tell you how much your bid needsto be, it is not a true counter in the sense
that you can just accept it and the home isunder contract. you would have to have your agent go back to the system, reenter the bid,and if there were no other bids and your bid was high enough, hud would accept that. withextremely aged listings, you know, we’re talking over three months, maybe four months,hud also may take 60 percent, i've even heard 50 percent of list price. but those are veryaged listings usually in markets that are very slow, very hard to sell homes in. allright. so we've learned, you know, what the period deadline means. here's the list price right here, fha financing,if it’s insured or not. let's talk a little bit more about that. hud has an appraisaldone on every home before it’s listed. the
appraiser goes through, determines the value,also notes any repairs for an fha loan. if that appraiser thinks there's less than 5,000dollars in repairs needed for the home to qualify for fha, it will be fha financeable,insured with escrow. if they think there's more than 5,000 dollars in repairs neededto go fha, that's when it will be uninsured for fha. if it is insured for fha financing,with or without escrow, an owner-occupant can get an fha loan on the home. and if ithas an escrow repair, they would determine how much money they need to make those repairs.say it needs a new furnace, and the buyer’s inspector estimates it will cost 3,000 dollarsto repair that furnace, that amount is added onto the buyer's loan. you know, hud doesnot pay this escrow, the buyer’s paying
it, but it’s added onto their loan. therepairs are made after closing, so after the house closes to the buyer, the repairs willbe made by a licensed contractor. and then the lender will reimburse that contractorout of the proceeds from the loan. if there's any money left, say the furnace only cost2,500 dollars, that 500 dollars would go towards paying off principal on the loan. it wouldnot go directly to the buyer. so the fha insured with escrow program allows an fha buyer topurchase a hud home that would otherwise need repairs and could not go fha. the reason hud does that is because hud willnot make any repairs on hud homes. nor will they allow any repairs to be done, exceptin very rare circumstances. those circumstances
are if the home is vandalized, or damagedby a storm, and imminent damage will be done to the home or it's dangerous. if a windowbreaks, if there's a hole in the roof, and, you know, the house is flooding, hud willcome make repairs to, you know, patch up the roof or tarp the roof, they will replace windowsor replace doors if they’re broken in. but that’s only for items done, you know, afterthe home is listed, dangerous items. they will not make repairs to plumbing, they willnot make repairs to heating systems. it doesn't matter if those repairs are required for yourloan or not. that is their nationwide policy. and it’s very important to know that beforeyou bid on a hud home. but you're not going into this completelyblind. if you see me coming here to the tab
called addendums, there will be a form inhere called the pcr. and we will open this up. and that stands for property conditionreport. and you see it opened up right here. not only does hud do an appraisal on everyhome before it's listed—and by the way, those appraisals are not available to buyersanymore. they used to be; they are no longer. if you’re doing fha, conventional, any typeof loan, you will have to get a brand new appraisal. you cannot use hud’s appraisal,and they will not show it to your lender either. but this shows you what the inspector foundon this home. now this is not a replacement for your own inspection. these appraisersmany times do not do complete inspections because utilities may not be on, or they mightnot have access to the roof. it's not as complete
as having your own inspector who will checkout everything for you, and usually have most utilities on. but it can give you some basicinformation to help you with your bid. all right. so right here it will tell youheating system, cooling system, it says it’s in okay shape. it says they tested it andit’s functional. over here, it will tell you the details on this, which isimportant. tested with active electric, the furnace was operational when controls wereactivated. gas, unavailable. that means the gas wasn’t on when they tested the furnace.so even though it says it's okay and it works, they don't really know it works, they’reassuming it works because the electric worked and everything else looked okay. they didnot test the ac because it was too cold outside.
so again, they did a visual inspection, everythinglooked okay, so they’re assuming it’s all right. this is why you cannot use a hudinspection in replacement of your own. you need to get your inspector out there, checkout the furnace, get the gas on, make sure everything's actually working. electrical wiring: they did have the electricon, they tested the system, no deficiencies noted. again, it's always best to double checkthese. the appliances, they tested those, good physical condition—you never know howlong they had them on, what exactly they do in these tests. here's the big one you haveto pay attention to: plumbing and the water systems. if the plumbing is damaged, hud willnot let you turn the water on for inspections
or appraisals. no exceptions. doesn't matterif it’s required for your loan. this is one of the biggest hiccups i see when agentsand buyers are trying to purchase a hud home. if they're getting a loan—you know, it couldbe conventional, could be va, could be usda—they require the water to be turned on, but theplumbing system is damaged and hud will not let them turn it on. it doesn't matter ifthe lender requires it, hud will not let it turn on. the deal is going to collapse unlessthey switch lenders to somebody who doesn't need the water on. now if you're using fha, doing an fha loan,you can escrow the damage and the repairs for the plumbing, and you don't have to havethe plumbing on to get an fha loan. that’s
the only loan you can use that escrow for.you can't use it for conventional, you can't use it for va, you can't use it for usda—onlyfha. so it's very important to look at this property condition report before you bid andsee if you can turn the water on. right here: damaged plumbing, does not work. the plumbingsystem did not hold pressure with applied with an air compressor. leaks detected inthe crawlspace. so they don't give us a whole lot of information. hud does not turn thewater, they only use an air compressor to test the system. if they find leaks, you cannotturn the water on. don't think you can get your bid accepted then talk your way intothem letting you have an exception because it won't work. you’re going to be wastinga lot of time and probably money. all right.
moving on. water heater okay. again, theydon't turn the water on. so they just basically look at it visually, see if it looks all right.sewing, sewer system, missing, not functional. there was an open sewer line to the kitchensink at the time of the inspection. so basically the drain does not connect from the sink tothe drain system in the house. that’s what that’s saying. roof: damaged. so there weredamaged and missing shingles in the rear roof at the time of inspection, to be replacedor repaired. no visible leaks. so this gives you quite a bit of information before youeven see the home on what work it needs, what condition it is in. all right. we'll closethis. back to hud homes. the other addendums, it talks about earnestmoney guidelines, lead-based paint addendum,
and then proper disclosures and repairs. this,we’ll open up as well, will tell you what the appraiser found when he did his reportanything on the inspection. all right, again, they disclose buyer should inspect the propertythemselves. even hud will tell you, you need to get your own inspector. repair escrow:so this is what they are assuming the repairs will cost. again you can adjust this if youneed to. if you do inspection and you find the plumbing system is much more damaged,you can raise this amount with 2 bids and a letter from your lender saying why you haveto raise it. if you find more repairs are required for fha—remember, this is onlyfha—you can add them on to here. and you can take off repairs if you find out somethingisn’t damaged that hud lists as damaged.
so here they estimate 500 dollars for plumbing,100 dollars to replace the sink drain, 500 dollars to replace the roof. now that's obviouslynot going to replace an entire roof. this is where your inspection can tell you if thewhole roof is damaged. you may need to raise this amount to cover it all, but you cannotgo over 5,000 dollars total for this escrow amount. so you’ve got to be careful. ifthe roof is 10,000 dollars, you can no longer go fha with this repair escrow. you coulddo fha 203k rehab loan, but that's going to be a much more involved, different processthan the regular fha 203b loan with escrow. again, a 203b loan is just for hud, just usingthese escrow repairs. all right. we’ll go to the earnest money guidelines since we’reright here. all right.
all hud homes have the same earnest moneyrequirements. so if the home is 50,000 dollars or less, the earnest money is 500 dollars.if the home is 50,000 dollars and one dollar and over, it's a 1,000 dollars. so the hudhome could be 400,000 dollars, and it’s still going to be 1,000 dollars for earnestmoney. owner-occupants have a much better chance of getting their earnest money backif something happens with the contract. if their loan is denied, they will usually getthat money back. if they find repairs needed that aren’t listed on the pcr, they willget that money back. now if you’re an owner-occupant, you do your inspection, and you find out theplumbing’s damaged on this house, and you ask for your earnest money back because theplumbing’s damaged, hud is going to say
you already knew the plumbing was damagedbecause it was listed in the pcr, we are not giving you your earnest money. so you needto make sure that any repairs, any reasons you’re canceling, are different, somethingyou found besides what is on that pcr. because hud assumes you already know about those repairs.if you are an investor, it is much different for earnest money. hud assumes you know whatyou're doing, you’re experienced. they will not give you your earnest money back if youfind something wrong with the house, even if it's not listed on the pcr. you could findout the entire heating system is bad, or you could find mold behind the walls—they willnot give you your earnest money back; it will be forfeited. the only time an investor getstheir earnest money back is if they're getting
a loan, and the lender denies them, hud maygive them 50 percent back of their earnest money. may—that’s the sole discretionof hud. and if something happens to the house after it goes under contract, like a treefalls on it, someone steals the plumbing, then hud will probably give the earnest moneyback to the investor if something happens after the investor gets a contract on theproperty. very important to know about earnest money with hud homes. all right. we’ll go back to the propertyinformation page. again, hud system sounds very complicated, there's a lot going on withit, but once you figure out the system, how it works, you get used to it, it's very simpleto use. everything's the same every time,
they have the same policies, each property,you know, sold the same way. but it does take a little getting used to. now with price changes, hud will lower theprice every 35 to 45 days. usually they lower it that same 11 percent, and then they wouldlower the net bids they would accept when that price is lowered as well. it does nothurt to submit low bids, like i said. in some cases if you submitted a low bid that wasnot accepted to begin with, and hud lowers their price to a point where that bid wouldbe accepted, they might go back to that buyer and say we will now accept your bid becauseit meets our guidelines. now if you’re doing that, your agent has to mark “save as backupâ€in your offer when they submit your offer.
so your agent will know about this, but wheneveryou submit up a bid to hud always have your agent mark “keep as backup offer.†itdoes not hurt you at all, you are not bound by that. if for some reason later on downthe road, hud accepts an offer from you because you marked it save as backup, and you don'twant to buy that house anymore. all you do is tell hud, i don’t want to buy it, i'mno longer interested, and they will cancel your bid. no penalty to you. you have notsent them earnest money, you have not signed anything, so you’re not bound to that littlecheck mark that says save as backup. all right. so let's say you decided you wantto buy this property, you want to submit a bid. it’s very easy for an agent to login, register, they submit an offer right down
here. it’s a one-page form, very easy foryour agent to do. they do have to have your social security number, your address informationfor all the buyers. hud will—like i said, if there's and initial 10 day bid period,they’ll review all bids in those first 10 days, make a decision the next business day.if we're past those days, hud reviews bids every business day. so let’s say the home’sbeen on the market 30 days actively. we would be passed the owner-occupied bid period. soit would say all bidders up here. the bid submission deadline would be the end of today,if it was a monday, or say a sunday through thursday, because the next business day theywould review the bid. and then the bid submission time would tell you how long you had to getyour bid in.
now if you’re bidding on a friday or a saturday,hud will accept bids every day up until the next business day. so if you submit a bidon friday, they’ll review bids that came in friday, saturday and sunday all at onceon that next business day. if your bid is accepted, you have 48 hours to send allyour paperwork into hud. hud will send the contract to your agent, all the disclosures,all the addendums. hud does not sign any state contracts, any state disclosures, it all hasto be hud documents. that has to be sent in 48 hours, and that’s business hours. soif your hud bid is accepted on a friday, you actually have until the next tuesday to getyour documents to hud. once hud has your documents, they will reviewthe contract. if it needs work, they will
email your real estate agent and tell themwhat corrections have to be made. make sure your agent is checking their email frequently.if not, they will cancel your bid if they don't hear from your agent in 24 hours. oncethey accept your bid, they will sign off on it. and your inspection period will start,which is 15 days long. so you have 15 days for your inspection. again, if you're an owner-occupant,you find something wrong that was not listed on the pcr, you can cancel your contract,get your earnest money back. hud will not reduce the price for anything you find, soif you’re trying to negotiate with hud, it won't work. you’ll have to cancel yourbid and bid at a lower price if you want to buy a home for less than your original bid.hud will not make repairs based of your inspection.
so it’s all for informational purposes only. if you have to do an appraisal, i suggestdoing it at the same time as you’re doing your inspection, especially if you have tohave the water turned on. because hud allows a three-day period to have the utilities turnedon. and if you have to have the home re-winterized, you will have to pay that 150 dollars up front,schedule your appraisal and inspection at the same time, so you don’t have to paythat 150 dollars twice. and the buyer can choose their own title company on hud homes,so you don't have to use hud’s tile company. in fact, you have to use your own title companyto close the deal. again, hud pays none of those costs. they don’t closing fees, titleinsurance—any of that. if you ask hud to
pay some of your closing costs, which youcan do in the contract, then you can apply some of that money towards title insuranceand other costs, but it will lower your net price to hud. all right. if you want to cancelyour contract, you have to use hud’s cancellation form. your agent can email hud, let them knowyou’re canceling, and hud will create that form for you. a few things to know about hud: very important.like i said, no repairs are allowed to be made by the buyer under any circumstances.hud homes are federal property. that means it is a felony to vandalize a hud home. andmaking repairs on a hud home is considered vandalizing it. you cannot paint it, you cannottake out carpet, you cannot repair the plumbing,
you cannot do anything to the hud home beforeyou buy it. it is a felony. hud’s penalties are up to a 250,000-dollar fine and two yearsin federal prison for violating their rules. the same goes for trespassing, if you moveinto the home before closing, you move any items into the home, you start parking a camperin the backyard—that is considered trespassing, punishable by the same penalties. you haveto be with your real estate agent at all times when you're visiting the hud home. it is alsoconsidered trespassing if you're agent gives you the lock box, and you are there withoutyour agent, unaccompanied in the property. very important stuff to know. so, it’s acomplicated system. there are a lot of different rules, but once you learn them it is actuallyquite simple to use. believe me, i know it
doesn't seem like it right now. lastly, i want to talk about a few thingson how investors can get great deals on hud homes. usually, the best way for an investorto buy a hud home is when they're uninsured. that is when the homes need the most work.it's very hard for owner-occupants to get loans because of all the work needed. andthe bit period for owner-occupants is shorter—only five days. so on that sixth day, hud willreview the bids they may have received from owner-occupants. hud usually reviews bids,you know, mid-morning, 10 a.m. to noon. and until they accept a bid, the home is stillavailable for sale on hudhomestore.com. so even if hud is accepting a bid later thatday, i highly encourage investors to bid on
hud homes on the sixth day as early as possible.and the reason is, if an investor gets their bid in on the sixth day at say, 6am, and hudthen accepts an owner-occupant’s bid from the previous bid period at 10 a.m. that day.the home would go under contract with that owner-occupant, but if that owner-occupantcancels, hud may go back and accept that investors bid before they put it back on the marketfor other investors, if it meets their requirements. so it’s a little trick. i’ve seen manyinvestors get great deals bidding on the sixth day in the morning because the owner-occupantcancelled. it’s very common for them to cancel on uninsured homes because they needso much work. bid early on that sixth day. the same thing for the insured properties:you know, bid on that sixteenth day; that's
when the investors will get those deals. ifyou wait one day, you wait two days, you are probably going to miss out to another investorbecause they're going to be bidding as soon as they possibly can. there aren’t manyhud homes in my area, but i still see great deals that investors are getting. i’ve seenhud homes flipped, i’ve seen great rental properties bought as hud homes—-it’s agreat resource to get a great deal, if you know the system, you know how it works, andyou're prepared to lose your earnest money if you cancel, and for the extra costs associatedwith a hud home. all right. we've gone through a lot. there'smore intricacies with the hud system, but we won’t go into everything right now. thelast thing i want to talk about is wholesaling
hud homes. many investors are wholesalers.you cannot assign a hud contract. there's no way to do it. i have seen investors whohave created llcs and then sold that llc to another investor. however, i've heard thatthe sec may investigate it if that happens multiple times over and over again. i don'tknow the details on that, but i’d always check all your laws, check with an attorneybefore doing that. and there is no restriction on how long you have to own a hud home asan investor. so as an owner-occupant, you have to live in the home for one year. that’sthe requirement: living in the home for one year means it is your primary residence, youlive there more than 50 percent of the time for one year. and investor, if he's buyingas an investor, can sell a hud home the minute
after he buys it if he wants to you. there'sno 90-day restriction, 60-day restriction like some of the other banks have. as soonas you buy it, you can sell it again if you like. so that is one plus to hud homes. butyou can't assign the contract, you do have to wait until you purchase the home yourself. all right. i think that's enough informationfor this video. if you have any questions, please leave a comment. be sure to check outinvestfourmore.com for much more information on real estate investing. i’ve got a greatarticle on hud homes with many more details on the system, how to bid, how to get greatdeals on them. thanks a lot for watching. have a great day.