Learning how to buy HUD homes in New Mexico can be a lucrative alternative for many savvy home buyers.
This article offers a guide and some insight on how to buy HUD homes in New Mexico.
Many of today’s savvy home buyers are considering the different opportunities available to them from Short Sales properties (value less than mortgage balance), and Bank Owned Homes (Foreclosures). One of the options is HUD homes. HUD (Housing and Urban Development) home simply mean a property that has gone through the foreclosure process on a VA (Veterans Administration) or FHA (Federal Housing Authority) insured mortgage 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 the complexities and differences involved with each. Often times these differences may dictate the type of loan you can acquire, who pays for the certain closing cost or if there is a home warranty offered for example. Here are the first four key components of How to Buy HUD Homes in New Mexico.
Get Pre-qualified FIRST. There is no point in attempting to bid on HUD owned property if you are not pre-qualified and have 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 is 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 real estate brokers have the necessary NAID. Albuquerque Homes Realty does have this required certification.
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 the local MLS (Multiple Listing Service) but be in a PENDING (under contract) status with HUD. Your NAID certified REALTOR® should investigate this for you to determine true availability.
HUD typically makes its initial offerings to those that would be Owner Occupants not real estate investors. Having knowledge of this helps you as a buyer, so you don’t have to concerned with investor bidding. If a property has not sold after some certain timeline determined by HUD, they may elect to make the home available to investor type buyers.
Once you have selected a New Mexico HUD home to offer on 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 HUD list their properties they have already been appraised using FHA guidelines. The FHA appraised value is the initial asking price of the home. When a buyer bids above the asking price the amount over asking is collected from the buyer not as part of the loan but as cash due at closing.
HUD will pay up to 3% of the buyer’s closing costs, maybe. This concession may sound attractive up front. However, HUD sees the majority of closing costs in a transaction as the buyer’s responsibility. For example, the owner’s title policy is typically paid by a seller at least in New Mexico. HUD sees this as a buyer fee. The same holds true with a survey and home inspections. So the buyer is now responsible for a good bit more of the 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 paid to them at closing. Another bidder may bid exactly the same amount as you did but didn’t ask for the 3% buyer 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 versus a loan scenario and the offer price is similar HUD may very well take the lower CASH offer to expedite the closing and effectively eliminate any possible loan contingency issues.
When HUD accepts your bid, they will notify your REALTOR®. Sometimes HUD may not acknowledge you as the winning bidder but will engage in a counter offer scenario. Once both parties are in agreement, then your New Mexico HUD certified REALTOR® will have you sign the necessary contracts, addendums, and disclosures. An NAID certified broker should also know that contract documents are to be signed in their original with Blue Ink (no exceptions) and must be sent overnight to HUD. Email, Faxes, and electronic signatures are not acceptable.
HUD highly suggests having a home inspected prior to the offer process, however if handled this way an inspection would be a very basic and very limited visual inspection of the property since utilities are almost always off, and HUD will likely not allow them to be turned on without authorization and a valid accepted contract. A big part of any home inspection involves working electrical systems, running water, plumbing, appliances, etc.
HUD does provide a PCR (Property Condition Report) and a PCS (Property Condition Summary). The PCS is an inspection of sorts that tests the inoperative systems using generators for the electrical service and air pressure for the water system and then share their findings. The Summary report gives an “estimated” amount any repairs may be. This estimate is necessary for rehabilitation type loan scenarios.
Once HUD notifies the buyer via his/her NM Broker of acceptance the clock starts ticking very quickly towards completing a home inspection, loan processing and ultimately closing. HUD typically mandates the close date at this point. You will have the opportunity to conduct full home inspections but at your sole expense.
Having Utilities turned on is also a buyers expense and arranged by the buyer. Setting up utility turn ons, inspections, utility turn off (also mandated by HUD within 72 hrs of the turn on) can be a strategic timing dilemma at best. For example: If the home has been vacant for an extended period, and most have been, the utility companies have likely removed the gas and or electric meter. The water is turned off, and the home winterized. For the 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) to obtain a Green Tag. The same holds true with the electrical meter. For the power company to turn on service, an electrician must first inspect, pull permits and have service inspected by a city inspector ($280.00+-). If all checks clear a green tag is issued, and the electric company sets a meter and turns on service. Keep in mind these items are all at the buyer’s expense whether the home closes or not. The water utility must on as well, any deposits are the buyer expense. The buyer is also liable for any damages caused by any utility turn on. The buyer’s broker 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 HUD homes you are buying the home AS IS WHERE IS WITH ALL FAULTS AND DEFECTS. So what you see or don’t see is what you get. For example, if the inspector discovers a defective 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 underwrite the loan. So a catch 22 scenario exists where the seller (HUD) will not make repairs, and the buyer is not allowed to make repairs prior to the close of escrow. The catch is that buyers lender will not underwrite the loan until those defects are repaired. 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 that you will be an owner occupant you are legally bound to occupy the home for at least one year prior to selling. Another requirement is no history of owning 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 buyer’s earnest money.
The title company handling the escrow must receive the buyer loan package and instructions from the lender 72 hrs prior to closing. The lender must be made aware of this. HUD must review and accept the final closing statement prior to the buyers closing and signatures.
HUD requires buyers to be physically at the closing. Buyers may NOT close remotely then send closing documents into the title company. 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 the time of closing. New Mexico is NOT a table fund state, so the normal is for funding to happen the following day. This practice is unacceptable by HUD. Your lender must make the necessary changes to make funds available on the day of closing.
Once the closing is completed, the buyer can take possession. The buyer, however, must make provisions to rekey the locks of the home. The buyer may not retain the existing keys. The buyer can now turn utilities back on and enjoy occupancy of their new home.
This article on How to Buy A HUD Home in New Mexico has a fair amount of detail; this does not cover all details by any means. The objective here is not to strike fear or discourage but to educate and prepare you. Learning how to buy HUD homes in New Mexico can be complex but knowing the expected protocol can mean the difference between success and failure. When correctly managed the purchase of a New Mexico HUD home can be a lucrative endeavor.
As outlined earlier having a HUD certified and knowledgeable NM REALTOR® is paramount to your success. John McCormack REALTOR® has the knowledge, experience and certification necessary to guide you with how to buy HUD homes in New Mexico. Call John McCormack, Broker
at Albuquerque Homes Realty or fill out the following form he will respond quickly.