New Mexico HUD Homes
How to Buy a HUD Home in New Mexico
Many of today's savvy home buyers are considering the different opportunities available from Short Sales, Bank Owned Homes (Foreclosures) and the like. One of those options is HUD homes. A HUD (Housing and Urban Development) home simply mean a home that has gone through the foreclosure process on a FHA insured mortgage and is now owned by the federal government or HUD.
Buyers need to understand the that all real estate transactions are not created equal and today's buyer needs to be familiar with complexities and differences in each. Often times these differences may dictate the type of loan you can acquire, who pays certain closing cost or if there is a home warranty for example. Here are the first four key components of How to Buy a HUD Home in New Mexico.
- Get Pre-qualified FIRST. There is no point in attempting a bid on a HUD owned property if you are not either pre-qualified with a supporting letter from your lender or you have proof of funds for a cash purchase. HUD will not consider offers without this!
- Hire a New Mexico Realtor that has been certified by HUD to facilitate a New Mexico HUD Home transaction. The agent must have a current NAID number to act on your behalf. You MUST have an agent representing you. A small percentage of New Mexico agents/Realtors have the necessary NAID. I am one of those few.
- Have your Realtor conduct a search for New Mexico HUD owned homes for sale or simply search the HUDHomeStore.com. website. At times a home may show ACTIVE in your MLS but be in a PENDING status with HUD. Your NAID certified Realtor should investigate this.
typically makes its initial offerings to Owner Occupants not investors.
Having knowledge of this helps you as a buyer to not be concerned with
investor bidding. If a property has not sold after some undetermined
timeline by HUD they may elect to then make the home available to investor type buyers.
- Once you have selected a New Mexico HUD home to buy pay close attention to the BID DEADLINE!
If you surpass that deadline you may not have another opportunity to
bid. If HUD does not receive an acceptable offer they may reset the Bid
Deadline and possibly adjust the price.
- Be mindful how you bid. When a HUD homes goes to market it has already been appraised using FHA guidelines. The FHA appraised value is the initial asking price of the home, if the buyer bids above the asking price and often they do in order to obtain the winning bid then the buyer is on the hook for the additional amount over and above the listed or appraised price. This does not become part of the loan amount, this is additional CASH due at closing amount.
- HUD will pay up to 3% of the buyers closing costs, maybe. This sounds attractive up front, however HUD sees the majority of closing costs in a transaction as the buyers responsibility. For example: The owners title policy is typically paid by a seller at least in New Mexico. HUD sees this as a buyers fee. The same holds true with a survey, inspections etc. So the buyer is now responsible for a good deal more closing costs than is the normal for our market. Now back to the BID process..HUD will pay up to 3% however HUD like any other seller is considering the NET amount to them at closing. Another bidder may bid exactly the same amount as you did but didn't ask for the 3% concession so the other bidder wins! (As a side note here, HUD does not just look at final net out. If a buyer is offering cash vs a loan scenario and the offer price is similar HUD may very well take the lower CASH offer in order to expedite the closing and remove any possible loan contingency issues.
- When you're Bid is accepted HUD will notify your Agent. Sometimes HUD may not acknowledge you as the winning bidder but will engage in a counter offers scenario. Once both parties are in agreement then you're New Mexico HUD certified Realtor will have you sign the necessary contracts, addendum's and disclosures. A NAID certified agent also understands that all contract documents must be signed in their original with Blue Ink (no exceptions) and must be sent overnight to HUD. No email, No Fax..it must be the original period!
- HUD highly suggests having a home inspected prior to the offer process, however if done this way would be a very basic and very limited visual inspection of the structure since utilities are almost always off and HUD will not allow them turned on without authorization and a valid accepted contract. A big part of any home inspection involves working electrical systems, plumbing, appliances etc.
- HUD does provide a PCR or Property Condition Report and a Property Condition Summary PCS This is an inspection of sorts that tests the inoperative systems using generators for the electrical service and air pressure for the water system and share their findings. A visual inspection is also provided. The Summary report gives an estimated amount any repairs may be. This is also necessary for the rehab type loan scenarios.
- Once HUD notifies the buyer via his/her agent of acceptance the clock starts ticking very quickly towards completing a home inspection, loan processing and closing HUD typically mandates the close date at this point. You will have the opportunity to conduct full home inspections at the buyers sole expense.
- Turning on Utilities is also at the buyers expense and arrangement. Setting up utility turn on, inspections, utility turn off (also mandated by HUD within 72 hrs of turn on) can be a strategic timing dilemma at best. For example: If the home has been vacant for an extended period and most of them have been, the utility companies have likely removed the Gas and Electric Meter. The water has been turned off and the home winterized (hot water heater drained, toilets drained etc) In order for a Gas Meter to be installed a licensed plumber must be hired to conduct a preliminary inspection and pull a city permit, package cost ($250.00) If that plumber or City inspector finds issues those items must be addressed (repaired) or no green tag is issued for the installation of the gas meter. The same hold true with the electricity, in order for the Power Company to turn on service an Electrician must first be hired to inspect, pull another city permit and have service then inspected by a City Inspector ($280.00) If all clear a green tag is issued and the Electric company sets a meter and or turns on service. Keep in mind this is the buyers expense whether the home closes escrow or not. The water utility must be turned on as well, any deposits are at buyer expense, buyer is liable for any damages caused by any utility turn on. Agents must provide access for each of these events.
- BUYER BEWARE! Inspections are for the buyers information only! HUD does not and will not make any repairs period. When you purchase a HUD home you are buying the home AS IS WHERE IS WITH ALL FAULTS AND DEFECT. So what you see or don’t see is what you get. This is where the rubber often meets the road. For example if the inspector discovers a defect in the roof it could easily jeopardize your ability to acquire an FHA or VA (government backed) loan. Certain defects can deem a property as substandard according to FHA/VA guidelines, repair of the defect is paramount to successfully underwrite the loan. So a catch 22 scenario exists where the seller (HUD) will not make the repairs and the buyer is not allowed to make repairs prior to close of escrow. The catch is that buyers lender will not underwrite the loan until such defects are cured. HUD works to overcome this issue with very targeted loan programs called Rehab Loans or 203(k) loans. These are complex and few lenders will tackle the challenges of a 203(k). That is another article for another day. With that said a buyer is wise to understand what the inspection reveals and if they have the necessary means and or funds to fix those issues and other issues that may arise after closing.
- A buyer states in the initial contract if they are planning to be an owner occupant or an investor. If you are stating you will be an owner occupant you are legally bound to occupy the home for a at 1 yr before selling. You can not have owned a HUD home within the past 24 months.
- In the event that inspections are behind or the loan process is lagging HUD does allow for an extension of close date, however this is a fee based extension to the buyer and gets expensive quickly. The extension must be approved in advance. If close date passes without a closing or extension the contract is considered null and void with HUD taking possession of buyers earnest money.
- The title company handling the escrow must receive the buyer loan package and instructions the lender 72 hrs prior to closing. The lender must be made aware of this. HUD must review and accept the final HUD 1 or closing statement prior to buyers closing and signatures.
- HUD requires a buyer to physically attend the closing. Buyers may NOT close remotely then send closing documents into the title company. So if a buyer is purchasing long distance or is out of town arrangements must be made for the physical signing by a power of attorney.
- Funds for closing must be available at time of closing. New Mexico is NOT a table fund state so the normal is for funding to happen the following day. This is unacceptable by HUD. Your lender must make the necessary changes to make funds available.
- Once closing is completed the buyer can take possession. The buyer however must make provision to re-key the homes locks. The buyer may not retain the existing keys. The buyer can now turn utilities back on and enjoy occupancy of their new home.
This series on How to Buy A HUD Home in New Mexico has been presented with a fair amount of detail, this does cover all details by any means. My objective here is not to instill fear in the buyer but to educate and prepare you. New Mexico HUD home purchases are complex and knowing the expected protocol will mean the difference between success and failure. When done correctly the purchase of a New Mexico HUD home can be a lucrative endeavor. As discussed earlier in this series having a HUD certified and knowledgeable Realtor is paramount to your success.
Call John McCormack at Albuquerque Homes Realty and AlbuquerqueHomes.com he has the knowledge and experience to help you succeed in your New Mexico HUD home purchase. 505-890-4576. Fill out the form below and I will get back to you ASAP.