PHILADELPHIA -- At only $10,000 to $50,000, HUD homes are cheap. The federal government, which acquired them through foreclosure, is marketing these homes as great deals for first-time buyers. But are they?
Real estate experts emphatically say no.
"I don't recommend HUD homes for 99 percent of the buying public. A HUD home is really a disastrous property in most cases," says Jay Lamont, director of Temple University's Real Estate Institute.
Many HUD homes are vacant, boarded-up, require extensive repairs and are in rundown neighborhoods. The Department of Housing and Urban Development advertises them in real estate sections of Sunday newspapers and sells them to the highest bidder.
Mr. Lamont said HUD properties are for professional real estate speculators who can afford to pay cash and have work crews to renovate them.
HUD homes are too risky for the average buyer because they come without guarantees and many won't qualify for a mortgage -- due to poor condition and location -- he said.
Nonetheless, HUD has launched a national advertising campaign touting its properties to first-time homebuyers in expensive Northeast cities.
Despite sagging real estate prices, "many first-time buyers still cannot afford a home above $50,000 . . . HUD offers an affordable alternative to higher-priced homes," HUD says in an upbeat press release. The release notes that local HUD home prices range from $15,000 to $30,000.
HUD officials acknowledge the ads may paint too rosy a picture.
"I agree that many HUD homes in Philadelphia, especially in the lower price range, would not be suitable for first-time buyers," said Peter Spina, chief property officer at the HUD office in Philadelphia.
He said the glowing recommendation could be more appropriate in Denver or Dallas, where HUD homes tend to be newer and in better condition.
But Mr. Spina contends that the program still offers money-saving opportunities for certain buyers.
A home priced at $10,000 could be a good deal for a person who doesn't need a mortgage and can handle extensive repairs. He cautioned that low-priced homes "aren't for people with no resources." However, a home priced at $50,000 probably could get a mortgage and would be a "pretty good buy," Mr. Spina said.
Only 10 percent to 20 percent of HUD homes -- those costing $35,000 to $50,000 -- would qualify for a mortgage. But Mr. Spina insists that a new HUD mortgage program could make lower-priced homes attractive to first-time buyers. The program, known as 203(k), will allow qualified buyers to obtain FHA mortgages that will finance the home and renovation costs.