HUD Home Secrets! - How to Profit with Government Owned Homes - Part 5 The Loan
The 203k mortgage was created as a financing vehicle to help revitalize economically
depressed communities and to make the dream of home ownership a reality for more
Americans.
As you might expect, the government does place restrictions on how much individuals
can borrow and under what circumstances loans will be granted. But, contrary to popular
belief, the program itself is not exclusively set up for lower-income borrowers. It's open
to everyone -- from existing property owners looking to modernize their high-priced
homes to those who can only afford a fixer-upper.
"Most frequently, the 203k loan is connected with HUD foreclosures because many of
those properties are in bad shape and they've been left unoccupied for a long period of
time, but anyone can qualify for them.
The Benefits
Perhaps the greatest advantage of the 203k loan is the break you get in interest rates.
The loans are offered at about 1 percentage point above standard FHA loans. That may
be more than a conventional mortgage, but considerably less than the rates for
renovating an existing structure.
And renovation is hardly an uncommon expense. More than 60 percent of individuals
who purchase a new home spend at least $5,000 on renovations in the first year. If you're
doing more than $10,000 in renovation work to your home, the 203k loan is by far the
cheapest way to go.
Not So Bad
The 203k loan program has been around for decades. But for the majority of that time,
real estate agents and lenders processed very few since the paperwork involved was
tedious and it took too long to close. It was heavily regulated by the government, but not
anymore.
In an effort to streamline the process and spark interest in the program, HUD revamped
regulations a few years ago and handed over much of the administrative duties to the
lenders.
Today, the average 203k loan -- including the closing -- takes anywhere from 30 to 45
days to process. That compares with two months or more before the process was
privatized.
While the 203k mortgage can be a good deal, those who have been through the process
say it's important to do your homework before you begin -- and to get a good sense of
how much you're prepared to spend on renovations.
You really need to sit down and evaluate the work that is needed. Have a good contractor
thoroughly inspect the home and not just physically look at it. Have him get under the
house and test the wood and look for damage. Be sure all plumbing and electrical is
checked. You don't want any surprises after you own the home.
For Investors
HUD defines a one-to-four unit property as either a single family, duplex, triplex or
fourplex. These are properties that can be sold through HUD brokers. HUD defines an
apartment complex as a property that has five or more units contained within it. They can
be walk-ups, townhouses rented as apartments and have either no garages or detached
garages.
Unlike the procedure for single family to fourplex properties, HUD likes to sell the multifamily
properties directly through their Property Disposition Department in Washington,
D.C.
To be placed on the mailing list, write to:
HUD / FHA
Property Disposition Department
U.S. Dept. of Housing & Urban Development
Washington, D.C. 20410-8000
Part Five
THESE CONDITIONS APPLY TO
ALL SALES OF HUD PROPERTIES.
A.) All assessments, including improvement assessments which are available for
payment without interest or penalty for advance payment, taxes, rent, and ground rent, if
any, shall be prorated as of the closing date.
B.) Seller makes no representations or warranties concerning the condition of the
property, including but not limited to mechanical systems, dry basement, foundation,
structural, or compliance with code, zoning or building requirements and will make no
repairs to the property after execution of this contract. Purchaser understands that
regardless of whether the property is being financed with an FHA-insured mortgage,
Seller does not guarantee or warrant that the property is free of visible or hidden
structural defects, termite damage, lead-based paint, or any other condition that may
render the property uninhabitable or otherwise unusable. Purchaser acknowledges
responsibility for taking such action as it believes necessary to satisfy itself that the
property is in a condition acceptable to it, of laws, regulations and ordinances affecting
the property, and agrees to accept the property in the condition existing on the date of
this contract. It is important for Purchaser to have a home inspection performed on the
property in order to identify any possible defects. If FHA insured financing is used, up to
$200 of the cost to perform the inspection may be financed into the mortgage. Names of
home inspection companies can be found in the yellow pages of your telephone
directory under the heading "Home Inspection Services.
C.) If financing is involved in this transaction (Item 4), Purchaser agrees that should
he/she/it fail to provide documentation indicating that proper loan application was made
in good faith within 10 calendar days of the date this contract was accepted by Seller,
and/or thereafter otherwise to put forth good faith efforts to obtain necessary financing,
Seller shall have the option of rescinding this contract and retaining all or a portion of
Purchaser's earnest money deposit.
D.) Seller may rescind this contract and return all or a portion of Purchaser's earnest
money deposit under the following conditions:
1. Seller has not acquired the property.
2. Seller is unable or unwilling to remove valid objections to the title prior to closing.
3. Seller determines that purchaser is not an acceptable borrower.
Tender of the deposit shall release the Seller from any and all claims arising from this
transaction.
E.) Purchaser may not perform repairs nor take possession of the property until sale is
closed. Seller assumes risk of loss or damage until sale is closed, unless Purchaser
takes possession of the property prior thereto, in which case State law shall apply. (1) If
sale involves FHA insured financing and after damage the property no longer meets the
intent of Minimum Property Standards (MPS), Seller may, at its option, perform repairs or
cancel the contract and return Purchaser’s full earnest money deposit. If, after damage,
the property still meets the intent of MPS, Purchaser has the option of accepting the
property as-is, with a purchase price adjustment at Seller’s sole discretion, or canceling
the contract and receiving refund of full earnest money deposit. (2) If sale does not
involve FHA insured financing, Seller will not repair damage but may, at Seller’s sole
discretion, reduce the sale price. Purchaser has option to cancel the contract and receive
refund of full earnest money deposit. Tender of the earnest money shall release Seller
from any claims arising from this transaction.
F.) If this property is being offered with FHA insured mortgage financing available,
Seller's acceptance of this contract constitutes a commitment to insure, conditioned
upon Purchaser being determined by Seller or Direct Endorsement Underwriter to be an
acceptable borrower and further conditioned upon Seller's authority to insure the
mortgage at the time the sale is closed.
G.) Purchaser understands that Seller's listing price is Seller's estimate of current fair
market value.
H.) No member of or Delegate to Congress or Resident Commissioner shall be admitted
to any share or part of this contract or to any benefit that may arise there from, but this
provision shall not be construed to extend to this contract if made with a corporation for
its general benefit.
I.) Purchaser and Seller agree that this contract shall be binding upon their respective
heirs, executors, administrators, successors or assigns but is assignable only by written
consent of the Seller.
J.) If this property was constructed prior to 1978, Seller has inspected for defective paint
surfaces (defined as cracking, scaling, chipping, peeling or loose paint on all interior and
exterior surfaces). Seller’s inspection found no defective paint surfaces, or if defective
paint surfaces were found, Seller has treated or will treat such defective surfaces in a
manner prescribed by Seller prior to closing. Purchaser understands and agrees that the
Seller’s inspection and/or treatment is not intended to, nor does it guarantee or warrant
that all lead-based paint and all potential lead-based paint hazards have been eliminated
from this property. Purchaser acknowledges that he/she/it has received a copy of a
pamphlet which discusses lead-based paint hazards and has signed, on or before the
date of this contract, the Lead-Based Paint Addendum to Sales Contact - Property Built
Before 1978. Purchaser understands that the Lead-Based Paint Addendum must be
signed by all Purchasers and forwarded to Seller with this contract. Seller will not accept
contracts, which are not in conformance with these requirements.
K.) The effective date of this contract is the date it is accepted (signed) by the Seller.
L.) If the amount stated in Item 5 exceeds actual and typical financing and/or closing
costs, such excess shall not be paid by Seller and may not be used by Purchaser to
reduce amount(s) due Seller.
M.) Seller’s policies and requirements with regard to earnest money (including forfeiture
thereof), extensions of time in which to close the sale, back-up offers, and allowable
financing and/or closing costs are detailed in instructions issued to selling brokers.
N.) Seller makes no representations or guarantees that the property will, in the future, be
eligible for FHA insured mortgage financing, regardless of its condition or the repairs
that may be made.
O.) Warning: Falsifying information on this or any other form of the Department of
Housing and Urban Development is felony. It is punishable by a fine not to exceed
$250,000 and/or a prison sentence of not more than two years. (18 U.S.C. 1010, 3559;
3571)
P.) This contract contains the final and entire agreement between Purchaser and Seller
and they shall not be bound by any terms, conditions, statements, or representations,
oral or written, not contained in this contract.
Q.) Walk-Through Inspections
All purchasers are strongly encouraged to perform a walk through inspection at or near
the date of your contract acceptance and, again, immediately PRIOR to closing. If a
purchaser discovers a property condition that did not exist at the time of sale they must
immediately notify HUD's property manager, Golden Feather Realty, of the damage.
Reporting the damage does not guarantee the correction of the problem that has been
discovered. The lack of written documentation describing property condition at contract
acceptance, however, will preclude consideration for repairs or price adjustments in the
event of subsequent damage. Each case will be looked at independently and a
determination will be made as to whether the damage will be repaired (or not repaired) or,
under some circumstances, credits given at closing. The buyer assumes full
responsibility for the property and its condition on the date of closing. Neither HUD nor
Golden Feather assumes any responsibility, and will make no settlement for damages
reported to HUD after the close of escrow. (See item #13.E of HUD Sales Contract).
Inspections are for the benefit of the buyer. Under no circumstances shall this advice be
construed as a warranty by HUD or real estate broker as to the condition of the
properties.
NOTE - The "Lead Based Paint Addendum" disclaims any and all responsibility from the
government if illness is caused by owning a HUD owned property, whether or not it
contains lead based paint. When signed, this document completely declares HUD
immune to any future claims. This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
