HUD Homes vs. Foreclosures.

Posted by Professional Realty on Sunday, October 27th, 2013 at 6:35pm.    1898 Views

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. 

Ohio Real Estate HUD Homes ForeclosuresLet 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.

5 Responses to "HUD Homes vs. Foreclosures."

Nate S wrote: Greg, thanks for explaining this! my family and I have been searching for the right house around the marysville columbus area, and everyone and their mother said "get a foreclosure to get the best deal" while half of them said "no, get a HUD home"... i can see the logic in your post and very educational for a simple first time buyer like me. Do you work in that area or can you recommend a realtor for me?

Posted on Wednesday, December 4th, 2013 at 6:29pm.

Greg Hancock wrote: Hi Nate,

Sorry for the slow reply, I tried your email but it bounced back. Hopefully you get notified of the the reply comment. Yes actually, I would recommend Chuck Wick or Jay Foote, you can find them on our company roster, they are based out of Beavercreek but buy and sell Columbus real estate as well. Best of luck to you!

Posted on Tuesday, December 10th, 2013 at 7:50am.

mark wrote: Interesting, i'm glad to have found this info on these types of homes. i always thought hud was the "bargain basement" of foreclosures, but now understand it's just who guaranteed the loan. i've just begun investing and ready to buy the first one, look at some hud homes but not finding much, but since this post, i've starting looking at all homes in my price range and finding many more options, and some in better condition.

thank you!

Posted on Tuesday, December 10th, 2013 at 9:02am.

Dan wrote: Hey there greg, just wantes to say this is great to know. i have known people that got a good deal on a hud or a foreclosure and each swears by the one or other. i've been out looking at dozens of each and have to agree with you that there seems to be no real difference and you might get lucky with one or the other, lol, at least after reading your comments i don't feel so stupid or that i have wasted my time looking at both and have more options.

Posted on Thursday, January 9th, 2014 at 12:43pm.

Al Brucker wrote: Great post Greg! As a HUD LIsting Broker for BHHS Professional Realty in Northeastern Ohio, I'd like to point out that there can be some great values in HUD homes and although the process of buying a HUD home may seem complicated, it usually works out more smoothly than other bank owned transactions. It's important for the buyer to get an agent to represent you who is experienced with HUD homes as many agents have never done a HUD transaction and many just have a hard time with the process. Anyone in the Greater Cleveland area interested in purchasing a HUD home can call me at 440-376-1748 .

Posted on Friday, January 31st, 2014 at 9:00pm.

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