The new FHA program includes [...]]]> There’s a few major problems in the new FHA Short Payoff  refinance that has been added to the “Making Home Affordable” family of solutions.  I’ll later take the time to write the full details of this issue, but I need to get this message out over the next couple of days.

The new FHA program includes new FHA guidelines that no longer allow an unlimited Combined-Loan-To-Value on FHA loans.  This is a HUGE problem.  Let me explain.

In the past, FHA didn’t cap how much a homeowner owed on their house if the homeowner wanted to refinance the first mortgage as long as the new loan was within the 97.15%-97.75% of the home value.  For instance, let’s assume a home buyer bought a $200k home with 20% down and ended with a $160k mortgage.  The house appreciated to a value of $220k and the homeowner took a home equity loan of $50k for home improvements, making their new combined loan amounts $210k.  Then the market declined and the new value is $170k, making the homeowner underwater on their home loans by $40k.

FHA would still allow this homeowner to refinance the first mortgage even though the second mortgage brought the home value to over 100% since paying off the $160k still had was within the 97.75% FHA limit.

$170k appraised value x 97.75% FHA LTV limit= $166,175…enough to pay off the $160k first mortgage owed.

The homeowner would still have their equity loan but this gives them an option to refinance their first mortgage, which may have a high rate or may be an adjustable rate mortgage set to adjust soon.  The new FHA guidelines will not allow the value of the two loans exceed 100% UNLESS the 2nd mortgage company is willing to write down the balance.

Short payoff refinances  sound good, but lenders often don’t want to take less than what’s owed.  The old FHA guidelines actually helps more homeowners because more homeowners have 2nd mortgages where a short payoffs wouldn’t be considered.  In fact, current FHA guidelines DO NOT PROHIBIT SHORT PAYOFFS so the new guidelines are only stricter than the old guides!  How is this supposed to HELP homeowners?  The guidelines are tigher and it’s now a part of the Making Home Affordable program?  I’m still scratching my head on this one.

To stay on track, there is a VERY important message I need to get sent to every homeowner in America with a second mortgage.  APPLY FOR A FHA LOAN AND GET A CASE NUMBER ORDERED NOW!  Why?  FHA will allow you to close under old or new guidelines if your case # was ordered before the deadline for the guideline changes.  Right now, that date is September 7th, 2010, less than one week away!  Even if you don’t qualify for a loan right now, credit is too low, equity is less than 97.75% right now, STILL GET YOUR CASE #.  By ordering it now, you can always revisit this option in case your credit is improved or equity position has improved down the road.  FHA doesn’t cancel case #’s and consumers who have a case # ordered are grandfathered into the old guidelines.  This allows above 100% combined loan-to-value and still allows you to explore the short payoff options that are available. 

If you talk to the right lender, you should be able to get this done in one day and for free.  Again, all homeowners who have 2nd mortgages and may consider refinancing at some point, please get a FHA case # ordered in the next couple of days.  Details can be read on this announcement letter from FHA:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf

I find that most consumers who are concerned with their credit feel that a credit blemish from years ago will keep them [...]]]> It’s scary applying for a home loan.  The commitment to buy a home is stressful enough.  Adding the fear of being turned down for a home loan can be too much for a consumer.

I find that most consumers who are concerned with their credit feel that a credit blemish from years ago will keep them from homeownership forever.  That couldn’t be farther from the truth.  Loan guidelines for a federally backed FHA mortgage only requires 3 years from a foreclosure, 2 years from a chapter 7 bankruptcy and 1 day on a chapter 13 bankruptcy discharge!  What does that mean?   It means that regardless of your credit past, you can probably qualify for a home loan in just a few years.  Often consumers will qualify and not even know it. 

The key to building your credit after a financial catastrophe is creating credit activity immediately.  The most common mistake I see people make is they never re-establish credit following their financial fallout.  If your credit was horrible after a bankruptcy and you never opened a new credit account, it will remain horrible.  Most consumers think that there is no way to build credit because they will not qualify for a loan, which makes sense.  However, there is a way.

Here are some basic ways to build credit when your credit score is low:

• Open a Secured Credit Card-
  • You can open a $100 credit limit card if you deposit $100 to the lender.  You can often get these from any bank or credit union.  The lender is willing to issue the card regardless of your credit because it’s secured by your cash deposit. 
• Open an Unsecured Credit Card or Installment loan
  • After you’ve had a secured credit card for 6-12 months, you should establish enough credit to open an unsecured card.  The rates you’ll be offered will be fairly high, so try to pay the balances off during the grace period.  Avoid cards with annual fees if possible.  You can also then apply for an auto loan if you need one.
• Keep Your Credit Cards in Good Standing and Avoid Paying Unnecessary Finance Charges
  • Keeping your credit card in good standing includes paying your bills on time.  It also requires you to keep your balances low.  Never let your balances exceed 25% of your limit.  That may seem low, but keep it there and your score will remain high.  As your score builds, you can request higher limits.  You can then lend up to 25% of your new balance.  Also try to pay the balances off during the grace period to avoid interest charges.  I often tell clients to treat the new card like a debit card.  When you make a purchase, use your receipt and transfer that much money from your checking account immediately. 
• Monitor Your Credit and Dispute Incorrect Items
  • Most credit reports are inaccurate.  The last thing you need pulling down your credit is an account that doesn’t even belong to you.  Check your credit regularly with a monitoring system and dispute items that are incorrect.  You can also pull a free credit report on www.annualcreditreport.com.  This is very important for people who have gone through  a bankruptcy because creditors often do not update account information following a bankruptcy. 
• Pay Your Collections Early
  • When a collection has been on your credit for too long, it sometimes temporarily LOWERS your score when you pay a collection off.  Eventually, it will benefit your credit to have it paid, so pay the collection as soon as possible.  If you’re thinking of paying off a collection and are near qualifying, look to see when the last time that collection agency reported the debt.  If they haven’t reported any updates for a year or longer, you will likely want to hold off on paying that account in case.  It’s best to pay the collections before they report on credit.  If you’re score is far too low to qualify, pay them all.  Letting the collection balance linger can be bad juju.  The collection agency can sell the debt to another.  You can end up having multiple collections on your report for the same debt.  Not good.

Not all mortgage lenders are the same, but most follow the same minimum credit guidelines.  If you want to buy a home, shoot to achieve these goals on your credit:

• Try to achieve a minimum 620 credit score for two of your three credit scores.  This is the industry standard for obtaining a FHA loan, which only requires 3.5% down.
• Pay off all liens and judgments immediately.  You will not be able to buy a house if you have outstanding judgments or liens.
• Keep at least 3 credit accounts open at all times.  If a credit card company ever makes you mad, DO NOT CLOSE IT!  Just cut up the card and pretend it doesn’t exist.  Closing accounts is bad for your credit.  Mortgage lenders may also require at least 3 open credit accounts to qualify for a home loan.
• If you’re had a bankruptcy or foreclosure, it’s very important that you show you can pay your bills on time following the event.  Many lenders will turn you down for a home loan if you’ve had late payments following a bankruptcy or foreclosure.

If it’s possible, look for a loan officer who’s goal is to help you obtain homeownership regardless of where you stand now.  I tell all my clients that if they’re serious about buying a home, they will eventually get there if they follow the right advice.  Find someone who’s educated enough to give you the advice needed and is willing to work with you along the way.

 Thankfully, the second mortgage companies have become much more lenient and willing to play ball. Companies are typically going to be okay with subordinating their loan if the homeowner is working on a HARP refinance on their [...]]]> The most difficult hurdles to overcome when helping HARP loan clients are typically placed by the homeowner’s existing lenders.

 Thankfully, the second mortgage companies have become much more lenient and willing to play ball. Companies are typically going to be okay with subordinating their loan if the homeowner is working on a HARP refinance on their first mortgage.  I’ll explain what this means, but it hasn’t always been the case.

If a homeowner qualifies for a HARP refinance on their first mortgage and they also have a second mortgage, they need permission from the second mortgage company to refinance.  This is called “subordination”.  Many of the lenders who hold the second mortgages were not approving subordinations on HARP loans when the program was introduced.

I’m happy to say that almost every major bank is now approving subordination agreements if the person refinancing is seeking HARP loan. I have personally seen Bank of America, Wells Fargo, Chase, Citi, Flagstar and many other banks or lenders approve subordinations over the past 4 months.  In fact, it has become so common that I expected all lenders to approve these subordination requests.

I was shocked to recently learn that Key Bank, one of the nation’s largest bank-based financial services companies, has a policy against subordinating. My understanding is that Key Bank will not subordinate a second mortgage above 100% value, or if the home value has decreased since the second mortgage was originated.  This has major implications for homeowners, and it’s a slap in the face to the government officials who fought to put the HARP loan into effect. The whole purpose of HARP is to benefit homeowners who have paid their mortgage on time and who need to refinance. We are talking about responsible homeowners whose tax dollars helped pay for this program. We are talking about responsible homeowners who need a fair refinance.  One of the most frustrating elements in this is that HARP refinances not only help the homeowners, but it actually IMPROVES the position of the second mortgage company.  There is no good reason for Key Bank, or for any other lender to not approve a subordination request on a HARP loan.

Let me illustrate a little further with an example. Let’s suppose I have a client who has a Fannie Mae 5/1 ARM.  They have a Key Bank home equity loan.  The adjustable rate loan is set to adjust in a few months and the customer wants to refinance to a lower, 30 year fixed loan which they’re qualified for under HARP guidelines.  They would be lowering their rate by over 1% and moving to a 30 year fixed.  Given the current circumstances, the homeowners would be lowering their payment and protecting themselves from a potential payment increase.  It is my understanding that Key Bank will not subordinate their second mortgage when all we’re trying to do is to fix the rate and lower the payment!  The alternative is probably that after the adjustment, the homeowner is forced into higher payment that he or she probably can’t afford and may be forced to let the home go. This appears to be bad business in every way possible.  They run the very real risk of damaging the borrower by limiting his or her ability to refinance.  Additionally, putting the borrower in financial distress will likely place a bank’s own equity in the home at risk. 

Key Bank has always been a specialty lender for home equity loans.  They have historically offered homeowners some of the best second mortgages available. This tradition continues today. Their rates and fees on second mortgages have been competitive for many years running. As you can imagine, many homeowners have second mortgages with Key Bank.

Seeing that there is minimal upside for Key Bank to have this position on subordinating for HARP refinances, I don’t think Key Bank intends to maintain this position for the long term, but there’s only so much time left for them to correct their position.  Considering that HARP loans have been extended until May of 2011, Key Bank and other lenders with similar positions have a short window of time to do the right thing and help protect their clients, as well as themselves, before the new deadline passes.

UPDATE 6/23/2010

Great news!  I’ve learned that Key Bank WILL approve subordinations on higher loan-to-value but they may not do it as easily as other banks. They will review all requests on a case-by-case scenario.  If the subordination benefits the borrower and does not increase the risk of Key Bank’s position, they will approve it.  I’ve received confirmation they’ve subordinated a 2nd mortgage as high as 190% of the home’s value!!

If you call Key Bank and ask their customer service rep, you likely won’t get the answer you’re looking for.  They’ll tell you the loan-to-value must be the same as the original loan which we all know is not possible if we’re trying to apply for a HARP loan.  However, this is to protect Key Bank’s position and not over promise what they can do for clients. 

When I spoke to Key Bank, they told me anything and everything you can do to support your request that it’s beneficial for both Key Bank and the client will be useful.  Here are some examples:

• If your first mortgage is adjustable and it’s set to adjust soon, they will take your higher consideration on your request.  Include the terms of your old AND new loan on your subordination request so they can see the benefit
• If lowering your payment is needed to prevent hardship, explain so.  Explain how your current payments are difficult to cover, give reasons and examples why and how the lower 1st mortgage payment will fix this problem.  Have the loan officer refinancing your first mortgage show a summary of your debt ratio so Key Bank knows you can’t afford the payments unless they do go down.
• If you don’t have an adjustable rate mortgage that’s about to adjust or some other type of hardship such as a high debt-to-income ratio, then there’s a better chance you won’t get the subordination approved.  Remember that Key Bank wants to agree to subordination agreements that make sense for everybody.  Allowing you to refinance and increase your existing loan amount to cover closing costs does not benefit Key Bank.  I have not tried it, but it sounds like you’ll have a better chance of getting a subordination through if the new loan amount is the same or less than the old one since it doesn’t not affect the position of Key Bank’s loan in any way.
• Key Bank loves new banking relationships, so if you haven’t moved all of your banking to them, offering this on your request may help in getting it approved

We’ll see how this plays out.  That said, it sounds like Key Bank is willing to approve subordination requests to the clients who really need it, which is fantastic.  I cannot commend Key Bank enough for taking this “Make Sense” attitude and helping homeowners in a market where homeowners need all the help they can get.

Related Posts:

http://www.keaneloans.com/2009/12/18/homeowners-guide-to-harp/

http://www.keaneloans.com/2009/07/28/another-flaw-with-the-harp-program/

Disclaimer: The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of Cobalt Mortgage.

The changes to seller concessions will have a large impact. Concessions include what the seller is contributing to the buyer in the transaction. A [...]]]> In January, the Department of Housing and Urban Development (HUD) announced the first major changes to FHA financing for the year changing the maximum seller concessions from 6% to 3%  early summer 2010.

The changes to seller concessions will have a large impact. Concessions include what the seller is contributing to the buyer in the transaction. A common concession is a credit from the seller to cover the buyer’s closing costs. A 3% limit on seller concessions is enough to cover closing costs on a purchase of around $250,000, but with a purchase price of anything less than $250,000 the buyer will be forced to pay some closing costs out-of-pocket. This will be a pain-point for many FHA borrowers in the months to come.

The change in concessions will also impact new construction transactions. Upgrades on a new home will be considered a seller concession if the purchase and sale clearly states that there was an increase in price for these upgrades. For example, supposing a buyer plans to purchase a new home at $295,000. In this transaction, the builder/seller is offering to pay the buyer’s closing costs up to $9,000, and the buyer is putting $20,000 down. The buyer’s loan officer arranges a loan with closing costs of approximately $8,000 for a $275,000 loan. In this instance, $275,000 x 3%= $8,250 — the buyer is okay.

However, as this is new construction and the buyer is purchasing from the builder, the buyer negotiates upgrades valued at $5,000. In this instance, the Purchase and Sale contract itemizes: upgraded flooring valued at $3000.00, and upgraded counter tops valued at $2000.00. In the underwriting process, the underwriter will likely consider these upgrades seller concessions. This additional $5,000 will be counted against the 3% limit. After a down payment of $20,000, your loan amount would be $280,000.  If you’ve been following the math, you will note that 3% x $280,000 = $8,400. The original $8,000 in closing costs, plus the $5,000 in upgrades will exceed the 3% limit. The loan no longer qualifies under FHA guidelines.

Another example of how this could affect a transaction?  Let’s suppose a buyer is shopping for a condo.  The seller is offering to pay for all the closing costs and Homeowner Association Dues for 1-year.  Both are considered a seller concession, so if the two figures total to over 3%, this purchase also would not qualify under FHA guidelines

If the seller is paying for something in behalf of the buyer, it is likely a “concession.”  Home buyers should be careful of any potential concessions offered if they’re planning on using FHA financing.

Why is HUD doing this?  The answer is simple, to protect home values.  Since buyers often need sellers to pay for their closing costs, HUD is trying to protect sales prices from being inflated to include these concessions.  Though a valiant cause, it doesn’t make sense to squeeze the little guy out.  FHA is now a perfect loan program for buyers in the higher income range and a small down payment.  This is not what FHA was intended for.  Here is an excerpt from HUD’s mission statement:

The Department of Housing and Urban Development (HUD) is committed to helping communities across America identify and overcome regulatory barriers that impede the availability of affordable housing. READ ENTIRE MISSION STATEMENT

Keep reading to learn more about the other changes mortgage guidelines and new rules as they come about.

UPDATE 6/9/2010

A colleague of mine (Ann Liberato, founding partner at Cobalt Mortgage) told me she spoke with someone at HUD and they confirmed the change is still happening but will likely take place in the fall of this year (2010).  We’re not sure why HUD is delaying the change but I hope that it is modified to allow higher concessions for smaller sized transactions.

I spoke with Ken Harney from the Washington Post a couple of weeks ago on this topic.  Ken also wrote an article about the changes to seller concessions for FHA financing:

One of the key attractions of FHA mortgage financing is going, going — but not quite gone. Sellers and buyers who move fast can still make the most of it.

Sometime this summer, the Federal Housing Administration plans to slash maximum “seller concessions” from 6 percent of the home price to 3 percent. Seller concession rules allow buyers to look to the property seller to pay for some services and taxes connected with the transaction — loan origination and local transfer fees, appraisals, inspections, closing and escrow costs, among others — though not the down payment.  READ MORE

I hope the national attention will persuade HUD to allow higher concessions on smaller transactions.

UPDATE JULY 28TH, 2010

 HUD is closer to changing their concessions from 6% to 3% but is open to hearing comments, according to an article on Mortgage News Daily.  I will be sure to let my voice be heard.  If you would like to have your voice heard as well, please follow the instructions as given from this article.

1. Visit http://www.regulations.gov
2. Scroll down about 1/3rd of the page and you will see a link for “What’s Hot –Most Visited Regulations”
3. Click on that link and you will see a list of pending regulation. Select the notice:  “Federal Housing Administration Risk Management Initiatives:  Reduction of Seller Concessions…”
4. That will take you to a page where the document outlining these changes is available for review.  Towards the top right-hand of the page, you will see a link in light-blue ink that reads “Submit Comment”…click on that link and fill-in your information, and type-in your comment.
5. Hit “submit” and let your voice be heard.

CLICK HERE TO READ MORE

HUD (The Department of Housing and Urban Development) [...]]]> The answer to this question varies depending on the loan program a buyer is looking at, but most buyers who have past credit problems rely on FHA loans as their fastest track back to homeownership.  This is due to FHA’s lenient credit guidelines compared to conventional loan programs.

HUD (The Department of Housing and Urban Development) just released updated guidelines on the very topic on December 16th, 2009 in their Mortgagee Letter 09-52.  This mortgagee letter specifically covers FHA guidelines for buyers who have sold their property for less than what they owed.

The new FHA guidelines say a buyer cannot buy for 3 years if they were delinquent on their previous loan leading up to the short sale.  This timeline is identical to FHA guidelines on a foreclosure.

The guidelines do say a homebuyer can buy immediately following a short sale IF they were current on their mortgage and other installment debt payments at the time of their short sale and if the proceeds from the short sale were accepted as a payment in full.  In other words, if you were not late and the bank accepted your sale, you can buy again.

HUD does say that you cannot buy using a FHA loan if the purpose of the short sale and new purchase were done to take advantage of declining market conditions or to purchase a similar or superior property at a reduced price.  In other words, don’t abuse the guidelines to get a better deal.

To sum up the guidelines, you can buy immediately after a short sale but you cannot have been late on your loan and you can’t buy if your short sale was done to benefit from current market conditions.  Which scenarios would this apply to?  Here’s a few that would fit the requirements:

• You are forced to move do to a new job and location.  You have to sell your home and you owe more than it’s worth.
• You cannot afford to keep your home, such as losing your job, and were able to sell your home before becoming late on the home loan payments.  You then buy again when you have a new job and can afford the payments
• You have a balloon payment due and cannot afford the payment.  You sell for less than what you owe due to market conditions and later buy.

If an owner cannot afford to pay their Fannie Mae backed mortgage, they can deed the property to Fannie Mae and rent it back at market rate.  The homeowner can obtain a lease up to 12 months and either sign a new [...]]]> Earlier this month Fannie Mae announced the release fo their “Deed for Lease program.

If an owner cannot afford to pay their Fannie Mae backed mortgage, they can deed the property to Fannie Mae and rent it back at market rate.  The homeowner can obtain a lease up to 12 months and either sign a new lease or go month to month after the initial lease expires. 

All in all, this isn’t a bad idea.  This is a good alternative for homeowners who do not want to be kicked out of their house if they’re on the verge of foreclosure.  However, it isn’t a permanent solution.  Fannie Mae is not in the property management business.  They will sell the property as soon as they can, which means the homeowner should be prepared to move when the initial lease is up.

For homeowners who have had extremely bad credit hits and will not be able to buy a home for several years (such as large liens or a recent bankruptcy), this program should only be used to buy time since Fannie Mae will be looking to obtain a buyer later.  For homeowners who have only had a few late payments or a bankruptcy at least a year old, this could be a perfect solution. Homeowners could potentially use this as a “Lease-Option-to-Own” program on their own house.  They rent the house at market rent rates and re-establish their credit.  If they are capable of qualifying for a home purchase by the time the lease is up, they can try to buy the house back from Fannie Mae.  If the market price for the home is less than what they previously owed, they may even end up owing less on the house than they did when they were the original owner.

It also gives Fannie Mae time to prepare the house for sale and keep it from going to the foreclosure auction. This will keep the house from selling for below market price and in turn help boost the real estate market from further declines.

Any homeowner who does not obtain a loan modification should consider this option if it’s available and if they can qualify for a purchase loan by the end of the lease.  You will want to work closely with a mortgage consultant and draw a plan to save for a down payment (if necessary) and build credit during the lease so you’ll qualify, just like consumers who choose to do a lease-option-to-own.

This means the current loan limits set to expire this year will continue through next year.  This will help keep the real estate market on track for recovery.  According to a related blog on Zillow, the [...]]]> The temporary high-balance loan limits for Conforming GSE (Government Sponsored Entities) and FHA loans have been extended through 2010.

This means the current loan limits set to expire this year will continue through next year.  This will help keep the real estate market on track for recovery.  According to a related blog on Zillow, the bill only needs President Obama’s signature which should happen in the next few days.  No word as to whether the VA plans on extending their high-balance loan limits through 2010.  This is typical for the VA as their guidelines usually change shortly after changes have been made to conforming and FHA loans.

Here are the links to search for your loan limits by area:

Conforming loan limits (Fannie Mae)

FHA loan limits

VA loan limits (only through 2009)

I understand that some congressman want to protect the financial stability of HUD as well as the American people.  The last thing we need is a bunch of FHA foreclosed homes on the [...]]]> There is a new bill being introduced that would increase the minimum down payment for FHA loans from 3.5% to 5% (HR 3706).

I understand that some congressman want to protect the financial stability of HUD as well as the American people.  The last thing we need is a bunch of FHA foreclosed homes on the market.

However, I don’t believe this is the answer.  Yes, that sounds pretty bias considering the fact I’m a mortgage loan officer and my job is to help people get loans, but the loss of 100% financing never scared me and my business has only grown since the market has downturned.

First, let’s answer some very simple, profound questions.  Why do FHA loans exist?  Who were they made for? 

FHA loans were created in the early 1930′s to help boost the economy during the worse time in our country’s financial history, the Great Depression.  It was really quite a brilliant idea.  The government designed a loan program where banks write loans that are insured then purchased by the Federal government.  The government will insure the loans so if the owner defaults, the government covers part of the losses.  To cover these losses, the government charged the homeowners a premium called “mortgage insurance”.  Then, the government bought the loans as bonds and sold them to investors.  This freed up the lenders assets and could make a profit with minimal risk.  This system is the cornerstone for today’s mortgage market.

Today, FHA has recreated itself into the same vital tool it once was.  In the worse economic state since the Great Depression, FHA has become a major lifeline in the housing market helping millions of americans obtain homeownership.  FHA represents more than 50% of the financing used today for first time home buyers.  Personally, FHA buyers represent more than 50% of all my applications, which is amazingly high considering how many people are looking to refinance with today’s low rates.

I’m sure the supporters of this bill in congress worry there will be a high number of defaults putting the government’s money at risk.  However, I’ve watched both the total amount of foreclosures in my area and how many FHA foreclosed homes come on the market.  Hundreds and hundreds of new homes go into default each week, yet the website that shows FHA foreclosed homes only shows a handful of homes for sale in the 3 major counties in Western Washington. 

By pure marketshare alone, there’s no question we’ll see more FHA foreclosures in the future.  That said, the majority of FHA loans originated today are fixed rate loans.  Even the ARM’s (Adjustable Rate Mortgage) are some of the safest ARM’s offered today with low adjustment caps and low margins.  These are loans that were designed to succeed, not fail like the subprime loans of the past.

I know the extra 1.5% extra down payment doesn’t sound like much, but to a first time home buyer, it’s already a stretch to save that much money to put down.  Tightened guidelines in other areas would make more sense, but putting more money down is not the answer.

I once heard a quote that fits this situation perfectly. 

“If it’s not necessary to change, it’s necessary not to change”.

-Lucious Cary

Though many of these listings may be accurate, there is only one real [...]]]> I’ve always found it interesting that there are so many websites that claim to have a listing of foreclosed homes.  Many of them claim they have HUD (US Department of Housing and Urban Development) foreclosures which are foreclosed homes that had FHA loans.

Though many of these listings may be accurate, there is only one real source to find HUD foreclosures.  HUD contracts different management companies to handle their listings, meaning the websites that list real HUD foreclosures haven’t been easy to find.  For instance, Ten Management is the company that lists HUD foreclosures for Washington state, as well as many other states. 

Luckily for home buyers, HUD has recently updated their site and they now include a directory that directs the borrower to the proper management company.  You can find this website here.

I chatted with Derek Eyring who is the owner and broker of John L. Scott- Lake Tapps office.  Derek is also a HUD registered agent.  Derek told me to buy a HUD home, you must use a real estate agent who is a HUD registered agent or works for a HUD registered agent.  Since Derek is a broker for his office, all of his agents can make offers on HUD Foreclosures.  Derek told to me that many borrowers didn’t buy HUD foreclosures in the past, but there is more listings than previously and they’re great for first time home buyers. 

Many people who are looking for special loans for first time home buyers can also benefit from buying a HUD foreclosure.  Here are some benefits of buying a HUD foreclosure using FHA financing.

• Potential lower price on home
• $100 down
• Most homes are 203k eligible (FHA rehabilitation loan)
• Properties include a free inspection and appraisal (inspection is on the listing websites to review)

Here are a few tips you’ll want to look into prior to buying a HUD foreclosure

• Your real estate agent must be a HUD registered agent or work for a broker who is a HUD registered agent to make offers in your behalf
• HUD will not pay for any of the title insurance policy unless it’s included concessions agreed upon on contract
• There is usually only one escrow company per area that handles HUD foreclosures.  For example, the escrow company for HUD foreclosures in Western Washington is GBS Partners LLC.  Make sure your loan officer and real estate agent contact the local HUD escrow office and find out how long the process is.  When I contacted GBS, they told me that the transaction cannot close for 10 days after the borrower signs!  It’s important you plan accordingly so you know when you’ll be moving and how long you should lock your mortgage rate for.

Doug Stokes, a John L. Scott- Tacoma South agent who has specializes in HUD foreclosure transactions for years, told me in 2008, there would usually be only 1-3 listings in King county at any given time and 2-4 in Pierce County.  Doug has since told me that the available listings are usually more than double than last year.  At the time I spoke with Doug, King County had 8 listings and Pierce County had 7.