Most of this information came from HGTV’s www.Frontdoor.com. A great resource, by the way for information on all aspects of today’s housing market.
Uncle Sam is not looking to build up a fine real estate portfolio. Nor is he interested in flipping properties like hotcakes.
Nevertheless, the U.S. government is taking ownership of a growing number of foreclosed properties that secured government-guaranteed loans gone bad.
What does it mean to you?
All this translates into potential opportunities for real estate investors and bargain homebuyers, who can mine government-owned foreclosures to find discounted property. But there are also some obstacles to purchasing property from the government, and prospective buyers should be aware of these potential pitfalls before they make any offers to Uncle Sam.
Many government foreclosures can be bought at bargain prices because the government is motivated to sell and get someone back in the home. In addition, the government entity selling the property may be willing to pick up some of the closing costs, a practice that is not common for bank-owned foreclosure purchases. (Most bank owned properties will pay closing costs but because you are in competition with so many other First Time Homebuyers you may have to increase your offering price to be competitive.)
According to Andrew J. Waite, publisher of Personal Real Estate Investor magazine, the biggest obstacle for investors looking to purchase government-owned real estate is that all the best properties get scooped up by professionals specializing in that marketplace long before the rest of the investor community gets to pick through the leftovers. Another obstacle for real estate investors is that the federal government’s goal is to promote the American Dream of homeownership by owner-occupants. While some government agencies are more than willing to work with anyone who wants to help them get the real estate off their books, others put up hurdles to investors in particular and will only sell to them as a last resort if no one else qualifies to buy a particular home.(Mr Waite leaves unsaid is that owner occupants tend to pay a higher price than investors who, most of the time are working off a pre-determined ROI-return on investment)
HUD HOMES
In the 1990′s we were in a similar market and HUD Homes accounted for most of the inventory of foreclosed properties. As a result, HUD has a lot more experience than most banks in moving these properties. You may see more homes fall under this umbrella as the Federal Government seizes more of these properties and will need a conduit to move them off the books.
The U.S. Department of Housing and Urban Development (HUD) is a prime example of the federal government owning homes it doesn’t want. Under the auspices of HUD, the FHA insures loans used to originally finance the purchase of property. If a borrower defaults on one of these loans, the government has to make good on its promise and may end up taking ownership of the property.
When a borrower does default on an FHA-insured loan, HUD steps in, pays off the originating mortgage holder and then takes back the property. Thus, the federal government is now a reluctant property owner who wants to dispose of that property as quickly as possible. Interested buyers must submit a bid through a HUD-approved real estate agent or broker during the listing period. (If you need help finding a HUD approved broker in your area, contact us)
Listing prices are set through an independent appraisal. During the listing period (which lasts 10 days) HUD reviews the submitted bids and accepts the highest realistic bid.
HUD, as a Cabinet-level agency of the federal government, has a mandate to promote home ownership in this country.Thus, the agency is obliged to look at bids from prospective owner-occupiers first. If none of them work out, then HUD will entertain bids from the public at large, including investors. (Many of HUD’s homes are offered with special financing, including $100 down payments, a HUD approved Real Estate agent or broker can help you find those homes).
Go to the agency’s website at www.hud.gov to get more details on purchasing HUD homes.
Veterans Administration Homes
VA homes account for a much smaller percentage of the market than do HUD homes and as a result don’t always get the attention of their larger “cousin”.HUD Homes.
Like HUD, the U.S. Department of Veterans Affairs (VA) is not a lender but an insurer of loans made by other lenders against defaulting borrowers. The difference here is while borrowers under the FHA program must meet certain income and other criteria to qualify, under the VA loan program the original borrower must be a veteran.
If the original veteran borrower defaults on the loan anyone can purchase a VA home and possibly even assume the existing loan, even if he or she is not a veteran.
Look for special financing for both veterans and nonveterans looking to purchase a VA foreclosure. Known as the VA Vendee Financing Program, the benefits include:
No down payment for owner occupants;
5 percent down payments for nonowner occupants (investors);
No appraisal fees;
Competitive fixed rate mortgages.
Fannie Mae and Freddie Mac Homes
Fannie and Freddie want you to buy their homes
Until the last 18 months most folks thought Fannie and Freddie were a comic strip or sitcom characters (weren’t they regulars on I Love Lucy?)
The Federal National Mortgage Association (better known as Fannie Mae) and the Federal Home Mortgage Corp. (Freddie Mac) are the two shareholder-owned Government Sponsored Enterprises (GSEs) that are now under government conservatorship, but are not government agencies like HUD and the VA.
Both Fannie Mae and Freddie Mac buy mortgages from lenders, securitize them, and then sell them on the secondary mortgage market. This is turn provides a constant source of mortgage capital to member lenders who then fund more home loans to sell to the GSEs.
Fannie Mae and Freddie Mac are primarily in the mortgage business, not the home owning business. That said, when the mortgages they buy from lenders go bad, the enterprises have no choice but to foreclose on the defaulting homeowner. Thus, both Fannie Mae and Freddie Mac have homes to sell.
Since they are not government agencies, however, Freddie Mac and Fannie Mae have shareholders to answer to the same as any other corporation when it comes to dealing with the sale of assets (in this case real property). The primary goal is to get the foreclosed properties off of their books. (Look for special financing offers on some properties)
Go boldly where few have gone before you!
Most home buyers (First Time, seasoned and even investors) are mostly chasing bank owned properties, while thousands of government homes are waiting for new owners.
Make sure your real estate agent or broker is familiar with all types of foreclosures and that you are seeing the best properties that meet your wants and needs.
IT’S TOO IMPORTANT…DO IT RIGHT!
Greg Cook
First Time Home Buyers Network
951-265-4532 (mobile office)
951-699-7813 (Fax)
It’s Too Important…DO IT RIGHT!
Tags: First Time Home Buyers, loans for first time home buyers, Temecula Real Estate Market