Ohio Real Estate: HUD vs. Foreclosure, Which is Better?
As a Dayton to Cincinnati area Ohio Realtor, my business partner Marty Snyder and I get asked a lot of questions. One question I hear a lot is "What should I buy? A HUD property or foreclosure?" Too, I see a lot of clients online and on the website searching specifically for one or the other bent on thinking one is the better buy.
Let me dispel some myths and enlighten you about this topic. One is not a better deal than the other, in fact, it's always a case by case basis when it comes to buying a home. I can tell you from years of experience, buyers should not concern themselves with the type of ownership a property is under but rather focus on what home is going to meet their needs, they'll be happy in and can buy without regret.
How are HUD Homes Different from Foreclosures?
Let's start with the fundamental differences between these types of properties, and yes, there are some advantages and disadvantages, but not in terms of quality or what you're going to pay for a HUD home or foreclosure. First of all the major single difference was the type of loan on the property before default.
If the home had a loan through a lender that FHA insured (an FHA loan from the Federal Housing Authority) that means that under default, since FHA insured the loan and the defaulted property goes to FHA rather than become a foreclosure on the banks books. The home is then assigned to HUD, (Housing and Urban Development) which is an entity contracted by the Federal Gov't who's first priority is to get the home sold to an owner occupant. Should the home not be sold in a timely many to an owner occupant due to no satisfactory offer, the bidding is then opened to investors as well.
Deep Discounts on HUD Homes or Foreclosures? Not Necessarily.
Making offers on HUD homes are fundamentally no different than making an offer on a foreclosure. Only licensed Realtors can place the bid or offer. With HUD homes, your agent places your offer for you online. HUD is looking for roughly the same as any seller, and on a case by case basis an offer may or may not get accepted. Bids can be checked on daily, and sometimes you're not able to place a bid right away but have to way for a bid opening date. A competent Realtor can advise you. In the past few years, we saw deep discounts on the Dayton Ohio real estate market, but only because banks and HUD were overpricing them and homes sat on the market for a long time until they were forced to accept a lower offer. In 2012 we saw many of these homes selling 80-85% of asking price. Currently the homes are being priced more aggressively and you can hope for a 4-7% discount these days, anything more is now rare.
The problem with both types of homes is that they tend to take a long time to be available on the market and suffer yet further disrepair and damage due to humidity, no fresh air, mold, break-ins and animals, or leaks that wait for repairs. Many that intend to buy a HUD or foreclosure believe they will save money by doing the repairs themselves. That is not allowed by law if you are financing. For those situations there are FHA loans with repair escrows like a FHA 203k. Our preferred lenders are experts with these loans, ask for assistance through our Home Loan Services. If this is you, stay tuned for my next blog post about "How Much Home Can I Afford?"
The best bet for a buyer is to simply look for the home that fits your needs for space, rooms, bathrooms, yard and other amenities and don't worry about it being a HUD or a foreclosure. Many buyers benefit by buying a home that isn't a HUD or foreclosure by closing faster, less repairs and headaches, and a smoother process. Just look for the home that matches your needs.
If you need an expert southwestern Ohio Realtor, get in touch and I'm glad to help.