What Are HOA Special Assessments and Why Should You Care?

what-are-hoa-special-assessments-and-why-should-you-care

You’ve most likely already heard of a homeowner’s association (HOA), which is basically the governing entity over homes and common areas within an HOA community. It’s the HOA that sets forth a set of rules and regulations that homeowners need to follow and charges a set monthly fee that covers the cost of maintaining the community.

But what exactly are HOA special assessments? More specifically, how do such assessments affect you as a homeowner in an HOA?

HOA Special Assessments – Defined

The HOA fee that you pay every month is generally made up of two components. One part covers operations for the current year, which generally includes things like loan mowing, landscaping, garbage removal, pool maintenance, insurance, and water. The second part is placed into a reserve account to cover long-term repairs and replacements, including replacing the roof, paving the parking lot, painting the exterior, and so on. It’s imperative that these reserves are adequate enough to pay for these expensive things that will be required at some point down the road.

Part of the job of the HOA board is to predict with as much accuracy as possible which repairs will have to be done and when. If their predictions are on point, then the monthly dues should adequately cover the current operating expenses and long-term repairs and replacements.

If not, that’s when a special assessment enters the picture, which occurs when the HOA has to come up with more money over and above what’s collected each month from owners in the form of HOA dues. If that happens, the HOA board has the legal right to enforce a special assessment to cover the cost of major one-time expenses for repairs.

There could be any number of reasons why the HOA’s reserves come up short when money is needed for these major improvements. For instance, some homeowners might be in default on their monthly payments, or perhaps an unexpected natural disaster occurs that causes major damage not covered by the insurance policy. In either case, a special assessment may be imposed if there aren’t enough funds needed.

How Much Money Should a Reserve Fund Have?

An HOA should definitely have a reserve fund to begin with. If it doesn’t, that’s a huge red flag. Further, any reserve fund that does exist should have enough money needed to cover the cost of major repairs. The HOA board is typically responsible for determining how much should be set aside by hiring an outside accountant to conduct a reserve study.

This study estimates how much money is required to meet the needs of the HOA’s repairs and replacements as they are needed over time. Once completed, the accountant conducting the reserve fund study will recommend how much of the monthly dues should be set aside for the reserve fund in order to ensure there is enough money to pay for expected repair costs as they occur.

Why a Special Assessment Matters if You’re Buying in an HOA

While the majority of HOA’s may be well run, there are some that are not. Without an adequate reserve fund, an HOA has nowhere to take money from when a major repair is required. That usually means the HOA will have to impose a special assessment that involves taking more money every month from each homeowner, including yours.

Before buying into a particular HOA community, it’s imperative to review a copy of the HOA’s financial statements in order to see if the HOA has a reserve fund, and if it does, determine whether or not it’s sufficient.

The state of the reserve fund and the results of the reserve fund study will be included in the HOA’s financial statements, which should be reviewed before a purchasing decision is made. By comparing the two, you’ll be able to tell whether or not the HOA’s reserve fund is adequately funded or not. If it isn’t, that’s a huge sign that a potential special assessment could creep up in the near future.

Take a look around the building or community to determine roughly how old it is. Older communities will be more likely to require major repairs or replacements sooner than a newer complex. In addition, assess how well-maintained the common areas are. If they’re properly cared for, it could be a while before significant work is needed. If not, however, the odds of needing expensive repairs sooner rather than later – and having to pay for them – are much higher.

Limitations on Special Assessments

Special assessments cannot just be arbitrarily assigned and implemented. Some HOA documents require a certain proportion of homeowner approval before any changes in regular dues and special assessments that exceed a specific amount are made. Even if there are no specific details in the governing documents about the requirement of homeowner approval, the law in California requires that at least 50% of the homeowners must approve any increase in dues of 20% or more. If it goes through, all homeowners must receive notification of an increase between 30 to 60 days before the increase is slotted to go into effect.

The Bottom Line

When putting in an offer for a unit in an HOA, be sure to include a contingency that provides your attorney with the opportunity to request the HOA’s governing documents and review them to ensure the development is in good standing. If the possibility of a special assessment is very probable in the near future, you may want to think carefully about whether or not your pocketbook will be able to handle a price hike in your monthly dues at some point in the near future.

How Do Real Estate Markets Differ From One Another?

how-do-real-estate-markets-differ-from-one-another-featured

Rarely will you find real estate markets that are exactly the same.

In fact, your market could be drastically different compared to the one in the next community over. Of course, the differences typically tend to become increasingly noticeable the further away you go. For instance, a market from one state to another might be a lot different from each other compared to markets in different cities.

If you’re planning to move out of the neighborhood, city, or even out of state, be prepared to see some drastic variations. Comparing your home to one in another city or state is like comparing apples to oranges – it’s almost impossible. Making such comparisons is useless because real estate markets are rarely ever the same.

You can’t even compare what your market is like today versus what it was like last year, as even within the same market things will change as time passes.

So, what exactly is it that makes real estate markets different from one another?

Property Values

One of the biggest differences between real estate markets are the property values. The exact same house in San Francisco will certainly have a much different value if it was located in San Diego. This might seem obvious, but some people mistakenly believe that identical homes should be worth the same amount.

The only way to get an accurate value of a home is to have it appraised by a professional in person. Having it “appraised” over the internet by someone in a different city will more than likely result in an inaccurate answer.

When determining what the market value of a home is, it’s crucial to have an experienced local real estate professional assess the property based on current market conditions in which the home is located to come up with an accurate number. Local experts are well versed in the real estate market in which they work and better understand how the real estate market operates in their area compared to a professional who works in a completely different area.

Local real estate agents will pull a report of listings of similar properties that have sold no further back than 6 months to gauge what property values are worth. Not only do the homes need to be similar, they also need to be located in the same area and not have been sold years back. Any further back than a few months will render these comparables useless for comparison purposes.

Property Age, Style, and Features

The types of homes will vary from one real estate market to another, which also plays a part in differentiating markets. For instance, one market may be predominantly made up of 3-bedroom bungalows while another may be more focused on townhouses and condominium buildings.

In addition to the style of homes, their age also influences real estate markets. Some markets might have little to no new construction activity while others may be experiencing rapid growth in new construction. It would be futile to compare newer homes with those that are decades old.

Further, the types of amenities that the majority of homes in one real estate market have might be drastically different to those featured in homes in other markets. For instance, large lots, backyard decks, and open concepts may be commonly found in homes in one area, but could be scarce in another. 

Property Tax Rates

Nobody likes paying property taxes, but they’re inevitable and simply cannot be avoided. Aside from affecting your pocketbook, such taxes – more specifically, property tax rates – also impact how one market stacks up against another.

Real estate property tax rates can vary drastically from one county to another. For instance, the tax rate in Los Angeles County is 0.689% versus 0.812% in Napa County. That means a $400,000 home would come with annual property tax payments of $3,172 in LA versus $3,248 in Napa.

Quality of the Neighborhood

In the world of real estate, location is king. Property values are heavily dependent on the surrounding area that the homes are located in. A neighborhood of high quality will obviously be valued more favorably compared to an area that’s considered of lower quality. So, what exactly makes an area highly regarded? Many factors come into play here, including crime rates, school ratings, proximity to city centers, types of amenities, walking scores, and so forth.

In addition, homes that are located close to major highways or city centers play a key role in determining their overall market value. As a neighborhood gets closer to main arteries of transportation and downtown cores, the values of homes will be heavily impacted.

Rate of Appreciation

Property appreciation refers to the increase in value of a home over a certain period of time, and appreciation rates are another huge reason why real estate markets differ from one another. However, using an average appreciation rate to compare one real estate market to another is not a good idea.

One real estate market might have an appreciation rate of 4% while another might only have rate of 1%. A difference of 3% might not sound like a lot, but when you’re talking about a something as valuable and expensive as a home, that mere 3% could translate into tens of thousands of dollars or more.

The Bottom Line

Even real estate markets that are within close proximity to each other can be very different. It’s not uncommon to hear about real estate prices in the media, but the factors that actually influences prices in either direction are often neglected. It’s important to understand that every real estate market has different traits, which all come into play when it comes to differentiating one market from another and how homes in each market are currently valued at.

Turned Down For a Mortgage? Here Are Your Next Steps

turned-down-for-a-mortgage-here-are-your-next-steps-featured

It can be devastating to be turned down for a mortgage after getting your heart set on buying a new home. While lenders have loosened their lending criteria somewhat since the financial debacle nearly a decade ago, it can still be challenging to get approved for a mortgage if your credit score is low, your debt-to-income ratio is high, or your income is unstable. Ideally, lenders want borrowers to be able to check off all requirements before extending a mortgage.

So, what happens after you’ve been turned down for a home loan? Is your dream of buying a home dead?

Not necessarily. The next steps you take from this point forth will depend on a few components, including why you were denied in the first place. Having said that, there are certain things you can do right now going forward to help boost the odds of having your application approved at some point in the near future.

Find Out Why Your Mortgage Application Was Rejected

First things first. Identify the exact reasons why your lender denied your mortgage application. Luckily, lenders are legally obligated to inform you in writing why you were denied, which should make it easy for you to identify these reasons. But while this letter should outline particulars about your mortgage denial, sometimes the language used can be confusing to the average consumer. As such, it’s helpful to get in contact with the lender to have the points made in the documentation explained and have any of your questions answered.

Some of the more common reasons why mortgage are denied include:

  • Low credit score
  • No credit
  • Inadequate income
  • Lack of sufficient funds for a downpayment
  • High debt-to-income ratio
  • High loan-to-value (LTV) ratio
  • Low appraisal

Whatever the reason, there are steps you can take to improve your situation and put yourself in a better position to be approved the next time around.

Consider Other Loan Options

If you were turned down for a conventional mortgage, perhaps you stand a better chance of getting approved for a different type of loan program. Conventional mortgages typically have stricter criteria compared to other types of loans.

For instance, government-backed mortgages like FHA loans tend to be a little easier to get approved for, as their down payment requirements are lower (3.5% of the purchase price compared to a minimum of 5% for conventional mortgages), as are their credit score requirements (580 compared to 720 for conventional loans). In addition, traditional mortgages are typically less flexible when it comes to debt-to-income ratios compared to FHA loans.

Keep in mind that sometimes lenders might not have the mortgage option that you want or need, but this doesn’t necessarily mean that you can’t find it somewhere else. If the lender you’re currently working with does not offer these alternative options, consider shopping around for one that does.

turned-down-for-a-mortgage-here-are-your-next-steps-appraisal

Have Another Appraisal Done

If the reason your mortgage was denied was because the appraisal for the home you agreed to buy came in much lower than the purchase price, consider having another appraisal done. Lenders aren’t partial to extending loans on properties that they perceive not to be worthy of their investment. It’s too risky for them if the borrower winds up defaulting. As such, they typically reject these mortgages unless the borrower is able to come up with the cash to make up for the difference.

However, it’s possible that an error was made in the initial appraisal, causing the value to come in too low. Perhaps the appraiser used old or dissimilar comparables or did not take into account any improvements that were recently made to the home. Nothing is perfect, so there is a slight chance that the appraisal was simply inaccurate. If you have a hunch that this is the case, consider seeking a second opinion.

Start Working on Your Credit Score

If a low credit score played a big part in your mortgage denial, then the time to start improving it is now. While boosting your score doesn’t happen overnight, the steps you take today can make a huge difference in your score in just a matter of a few months. By that time, your score may be healthy enough for your lender to approve your mortgage application.

For starters, pull your credit report so you can see exactly what your score is and if there are any errors on the report that may be pulling it down. If you spot any, report them to your credit bureau to have investigated and rectified.

To prevent your score from falling any further, be sure to pay all of your bills in full by their due date. Perhaps one of the biggest reasons why your score is low is because you’ve defaulted on payments in the past. To increase your score, make sure to be timely with all debt payments going forward.

If you have a credit card, don’t max it out. The credit limit you’ve been granted shouldn’t be seen as an invitation to rack up your bill. Instead, it’s recommended that you spend no more than 30% of your credit limit in order to improve your credit rating. If you have an old credit card that you rarely use, don’t cancel it. Old credit is typically seen as good credit, as long as you don’t abuse it.

As you work towards ensuring mortgage approval in the near future, do what you can to better your credit rating.

Pay Down Your Debt

The amount of debt you have on the books has a huge impact on how your lender views your ability to pay your mortgage on time every month. A large amount of debt relative to your income will increase the odds that you won’t be able to make due on your mortgage payments, at least in the eyes of the lender.

If you currently have a high debt-to-income ratio, do your best to start chipping away at that pile of debt. Practice some self-discipline and avoid making any large purchases, especially on credit. The less debt you have on your record, the better your chances of getting approved for a mortgage in the near future.

Start Saving For a Beefed-Up Down Payment

While you’re paying down your debt, set a little bit of money aside each month to be put towards your down payment, especially if this was a major reason why your application was denied. The higher your down payment, the lower the mortgage amount you will need to qualify for.

Consider a Co-Signer

If you’re still finding it challenging to qualify for a mortgage despite your best efforts to improve any of the above, consider asking a close relative to co-sign the mortgage with you. This is often a last resort and is not typically recommended, but it’s still an option nonetheless. Of course, the co-signer will need to do their due diligence to ensure they fully understand the implications of co-signing on a home loan, as they will ultimately be on the hook if you ever default on the mortgage at some point.

The Bottom Line

It’s never fun to see the words “DENIED” stamped in bold red letters across your mortgage application, but that doesn’t mean your home buying journey is over. You can always try again in the near future, but before then, there are steps you should take to significantly improve the odds of approval the next time around.

Pros and Cons of a Month-to-Month Lease For Tenants

pros-and-cons-of-a-month-to-month-lease-for-tenants

The majority of leases are typically for a 12-month time frame. After that 12-month lease expires, tenants can enter a month-to-month tenancy unless a completely brand new contract is negotiated and signed.

However, there are circumstances whereby a tenant and landlord agree on a special short-term arrangement. In fact, there are rentals available on a month-to-month basis, though they’re harder to find in comparison to long-term leases.

This type of lease arrangement certainly isn’t right for everybody, but it just might be the perfect setup under the right circumstances.

Before you sign on as a month-to-month tenant with your landlord, be sure to weigh out the pros and cons first.

Pros of a Month-to-Month Lease For Tenants

Some renters like the idea of a shorter-term lease for a number of reasons, including the following.

They offer more flexibility. Perhaps the biggest benefit of being on a month-to-month lease is the amount of flexibility you are afforded. If you happen to change your mind about the place for whatever reason, you can get out of the lease by the end of the month, no questions asked.

Whether you got a great job offer across town, just graduated from college and don’t know what the future holds, or are new to the area and want the ability to feel out a particular neighborhood before committing, a short-term lease may be ideal. You’ll be given the flexibility and freedom of mobility to pack your stuff and move onto your next abode without worrying about being on the hook for breaking your lease early.

There’s no financial penalty for breaking the lease. Signing a 12-month lease puts you in a position to be legally bound to the timeline of the contract. Should you vacate the premises before the 12-month period is up, you’ll be legally responsible for providing your landlord with the full 12 months of rent (with certain exceptions), regardless of whether or not you still live there.

Renting as a month-to-month tenant, on the other hand, does not make you obligated to make such payments if you move out early. If you’re expecting to have to move before the year is over, you may be better off with a month-to-month lease instead, which can end up saving you a good chunk of change.

They can always be turned into to a long-term lease. If you end up loving the place, or don’t have anything happening in the foreseeable future that would require you to move, then you can always convert your month-to-month lease into a more long-term one.

By then, you’ll have been given the chance to get a feel for the home and area without committing yourself to it, after which you can settle down to a degree with a longer-term lease.

Cons of a Month-to-Month Lease For Tenants

Among with all the advantages that a month-to-month lease brings, there are also some downfalls to this shorter-term arrangement that warrant attention.

They lack stability. The flexibility that you may enjoy as a short-term renter also extends to the landlord. You may have to find a new place quickly if your landlord wants you out. It would be very inconvenient if you got nicely settled into your new place only to have your landlord suddenly require the unit to be vacant by month-end. This will leave you scrambling for a new place to live, which can make it tough to find availability on such short notice.

Your rent can be raised at any given time. Since you’re not locked into a long-term lease, your landlord can legally increase your rent any time (though you must be given at least 30 days’ advance notice if the rent increase is 10% or less). There’s really nothing stopping your landlord from increasing your rent from one month to the next, which could do some damage to your wallet.

They can be more expensive. Generally speaking, property managers charge higher rental rates for short-term leases because they are more likely to have to spend time and money filling in vacancies given the potential for a higher turnover rate. That means you could end up paying more in rent on a month-to-month lease. If your lease is renewed every month over the long haul, you’ll probably be paying more than you would with a more traditional 12-month lease.

They’re tougher to come by. Most landlords would rather deal with longer-term leases for the simple fact that it ensures that they won’t have to turn the unit over and over again, which costs time and money. Every time a tenant moves out, the landlord needs to market the property and get it ready before the next tenant moves in. As such, short-term leases can often be more expensive to carry, which is why they’re nowhere near as widely available as 12-month leases.

The Bottom Line

If any of the cons mentioned above cause you to lose sleep, then perhaps a month-to-month lease is not right for you. On the other hand, if you can live with the idea of being put in a position to find another place fast in favor of the ultimate in flexibility, then a short-term lease might be the way to go. This is especially true if you’re not one to stay put in one place for very long, and have a job and/or lifestyle that has you hopping from one place to another.

Prep Your Home For the Buyer’s Home Inspection Before You Sell

prep-your-home-for-the-buyers-home-inspection-before-you-sell

The majority of real estate purchase agreements will include a contingency to have a home inspection before a buyer takes the keys to a home. It’s not uncommon for buyers to gloss over issues with a home that a licensed home inspector might be able to catch. If there is a major issue uncovered, it will certainly be the subject of renegotiation.

If your home is currently listed for sale, you might want to consider prepping it before a buyer expresses interest in it and has their own inspector discover an issue that could put a wrench in the closing.

Most buyers will want to be sure that what they’re buying doesn’t come with a list of major problems that end up making the investment a money pit. They’ll want to be made aware of any issues with the major systems of the home, its appliances, and what components will need to be repaired or even replaced.

As such, their real estate agents will typically recommend that they have a home inspection conducted before closing in order to uncover issues that will either give them reason to renegotiate the purchase price, or walk away from the deal altogether.

Neither one of these scenarios is a pleasant one for sellers, which is why getting the home in tip-top shape before it even hits the market can help avoid any unnecessary, long drawn-out situations that can potentially put the seller right back at square one.

While buyers can have their own inspection done, so can sellers. By having your own inspection done, you’ll be able to find out if there is anything wrong with your home, and if so, how it can be fixed before your buyer finds out about it.

Here are some things you can do to adequately prepare your home and improve the odds that the buyer’s home inspection will come out with minimal issues.

Ensure Clear Access For the Inspector

Inspectors will go through anything and everything they can get access to, and that includes the attic and crawlspace. You’ve likely had little reason to visit these spaces in your home, but the inspector will surely have an interest in them. Make sure that you clear out any clutter that may be standing in the way of easy access to these particular areas in your home.

While you’re at it, make sure you’ve also cleared a path to your air conditioner, electrical panel, and water shut-off source. If you don’t, it not only makes the job of the home inspector more difficult, it may even make it look like you’re trying to hide something from the buyer.

Check the Condition of Your Appliances

If you are including your appliances in the sale of your home, take some time to make sure they’re in proper working order first. Inspectors will fiddle with the appliances to see how they function. It’s possible that the light in the fridge doesn’t work, or the dryer isn’t generating much heat when it’s in operation. Issues like these might need to be fixed, unless your contract specifically states that the appliances are being sold in “as-is condition.”

You might also want to give them a thorough cleaning job – especially the oven – before the inspector scopes them out.

Ensure All Detectors Work

Detectors are critical components in a home, such as your smoke alarms and carbon monoxide detectors. These are life-saving components and should ideally be installed on every level of the home. If you don’t have any detectors, be sure to install them right away. If you do have them, make sure they are working. It could be something as simple as replacing dead batteries.

Check the Plumbing

A burst pipe is an obvious problem that needs to be dealt with right away, but small leaks in the pipes might not be as readily noticed. Scope out all the faucets and taps in your home, and don’t forget to look under the sinks to check for any leaks. Look for any signs of water damage, which could point to a potential leak that’s coming from a source that may be behind the wall, ceiling, or floor.

Run all the faucets, showers, and bathtubs, and flush all the toilets in your home. While you’re testing these areas, pay attention to the water pressure. If it’s low, there may be some clogging or damaged pipes that might warrant further evaluation. An inspector will be sure to do all this testing, so take the time to do it first to see if there is anything that seems like it might need fixing.

Identify Any Electrical Issues

Ideally, the electrical panel should support the amount of power that your home’s appliances and systems need and use. In addition, there shouldn’t be any knob and tube wiring, which will typically render a home uninsurable and will deter a lender from approving a mortgage to the buyer. Check for any shoddy electrical work as well, as these can pose fire hazards. When in doubt, call in an electrician to have any potential issues fixed before a buyer is made aware of them.

Even dealing with minor things like replacing light bulbs can go a long way in ensuring that the buyer’s home inspection goes smoothly without a hitch.

Uncover Potential Issues With Your Windows

Check both the inside and outside of your windows, and make sure that they open, close, and lock adequately. Look for any cracks in the glass or tears in the ripped screens. Depending on the scope of the damage, the buyer may ask to have it repaired. Not only that, the lender may even have an issue extending a loan for the home if the windows are in severely bad shape, especially if they are broken.

Inspect Your Home’s Mechanics

The mechanics of a home are extremely important, including your HVAC system, water heater, and roof. Before you even put your home up for sale, you should consider having the HVAC system cleaned and inspected by a specialist. Be sure to keep the receipt so you can show it to the buyer to prove that you’ve had the HVAC system cleaned and inspected and that it’s in proper working condition. 

Get a roofing contractor to check out the roof as well, especially if it is getting old and is showing signs of wear. If the roof has to be replaced, you might want to consider having this done before listing your home. If a potential buyer finds out that the roof needs to be replaced, that could be enough to scare them off. Besides, having a new roof is something you’ll be able to advertise in your listing and is something that you can work into your listing price.

Look Over the Home’s Exterior

Take a walk around the outside of your home and identify any problems, such as clogged downspouts, cracks on the foundation, peeling paint, potholes in the driveway, an ill-functioning garage door opener, and overgrown weeds in the yard. Not only do all of these components play a key role in curb appeal, they can also be flagged on a home inspection report. If you notice anything awry, be sure to rectify them before the first prospective buyer sets foot in your home.

The Bottom Line

While buyers will bring in their own home inspectors, getting your own inspection done can help uncover issues that you may not have been aware of. This will give you the opportunity to make any necessary repairs or updates so that the buyer isn’t met with any unpleasant surprises when their inspection is done.

HUD Homes Can Be Great Bargains, But With Some Risk

hud-homes-can-be-great-bargains,-but-with-some-risk-featured

Who doesn’t want to score a great deal on a home? Getting a fabulous property for the lowest price possible is one of the primary goals of buyers and their agents.

One potential way to get a good deal is by considering the potential of a HUD home, which is a property that’s owned by the U.S. Department of Housing and Urban Development. But before making any final decisions, it’s critical to explore what the process of buying a HUD property is like, as it is different from purchasing a typical home. As such, you’ll want to know what these differences are before you buy.

Considering they’re foreclosures, it’s common to perceive HUD homes as those that require a lot of work to bring them back up to par. While this is certainly true for many HUD homes, there are still plenty others that don’t necessarily need much TLC. In fact, about 30% of all HUD homes are move-in ready, with another 30% to 40% needing just a minimal amount of work to update.

But while HUD homes can be solid purchases, it’s wise for buyers to approach the process with caution and get well acquainted with the potential risks. Considering the magnitude of such a purchase, it needs to be approached very carefully.

What Exactly is a HUD Home?

While these homes are owned by the government, they weren’t always. In fact, they’re properties that were previously owned by homeowners who financed the purchase using an FHA-backed mortgage. These types of home loans are generally easier to qualify for compared to conventional mortgages mainly because the required down payment amount is lower.

These homes end up in the hands of the federal government when homeowners default on their mortgages and the homes wind up in foreclosure. When HUD takes over the home, its goal is to sell it in order to recoup its money.

What Advantages Do HUD Homes Offer Buyers?

The biggest benefit to buyers when it comes to purchasing a HUD home is that they’re priced to sell and therefore come with a cheaper price tag compared to a conventional home. Neither banks nor the government are interested in hanging onto foreclosed homes longer than they have to. That’s precisely why they’re generally offered at good prices to attract buyers and get them off their hands.

In addition to a cheaper listing price, the HUD also offers incentives to attract buyers. For starters, buyers may be able to take advantage of certain allowances to cover closing costs or repairs. The HUD may pay as much as 3% of the closing costs, though this number needs to be negotiated when bidding on the home. HUD will also cover the escrow fee, which can save buyers hundreds of dollars at the end of the day.

Another perk goes to buyers who are owner occupants, as they are favored over investors, which can come in handy in the middle of a bidding war. And those who work as community employees – including emergency personnel, police offers, teachers, and so forth – can take advantage of a major bonus: those within this category who plan to live in the home for a minimum of 3 years can get as much as a 50% discount on the purchase price through the “Good Neighbor” program.

Potential Drawbacks of Buying a HUD Home

While there can be significant cost savings when it comes to buying a HUD home, there are certain disadvantages to be aware of as well.

These homes are typically sold for less simply because of the assumption of more risk, as these sales don’t come with any type of warranty. When these homes are visually inspected by buyers, the water and utilities are typically shut off, which can make it more difficult to accurately assess the condition and functionality of a home. It’s possible for issues to be discovered after the buyer moves in and turns on all the lights and taps.

That’s why it’s important to ensure that a home inspection clause is inserted into a purchase agreement to provide the opportunity to uncover any potential issues that would warrant a dead deal. It’s also recommended that buyers bring in government inspectors to ensure that there aren’t any code violations with the structure. If issues aren’t discovered before the contract becomes binding, buyers could be left with a money pit that could cost them dearly. It’s not uncommon for buyers to actually come out the other end having spent more money than they had originally intended to simply because they were unfamiliar with the process. 

The Bottom Line

The process of buying a HUD home is not that easy, and as such, it’s not a transaction that you want to tackle on your own. Having a real estate professional who’s well versed in purchasing HUD homes will prove to be extremely helpful in ensuring that you get a good deal while navigating the entire transaction seamlessly with minimal hiccups.

The key to a successful HUD purchase is to fully understand all the ins and outs that come with such a transaction and what the requirements are before putting in a sizeable offer.