Buying a HUD home

August 11, 2002|By Anne Lauren Henslee | Anne Lauren Henslee,SPECIAL TO THE SUN

Perhaps you've seen it: a well-framed rowhouse in a quiet Baltimore neighborhood. Inside, peeling paint, chipped plaster and rotted floorboards hint at the age of the 80-some-year-old house.

It could be the home next door. Then again, it could be home.

For Thayer Young, a reserved 32-year-old science teacher, it is. And it all began with a bid.

Last year, the Department of Housing and Urban Development sold 65,986 properties nationwide. Of those, 1,729 were sold in Baltimore for $61.8 million, for an average price of $35,700.

Beginning July 30, the department stepped up measures to encourage first-time homebuyers to purchase HUD properties, according to HUD Secretary Mel Martinez.

The Department of Housing and Urban Development is offering a $1,000 cash-back move-in allowance to homebuyers who sign sales contracts on single-family HUD homes by Sept. 30.

The check will be issued at closing and can be used for expenses such as moving costs and home repairs. To qualify, the buyer must agree to use the house as his primary residence for at least 12 months.

Real estate agents and buyers say purchasing a house from HUD can have its rewards - possibly gaining a property that costs less than a home on the open market. But you should know that a HUD home also might wind up costing more than anticipated, both in time and money.

Tired of renting, Young chose to buy from HUD, because it was an affordable way to purchase his first home, especially with the added incentive of the agency's half-price program for teachers.

"It was too good for me to pass up," Young said.

His hunt began with a simple task - logging onto the HUD Web site - where he found the current listings of homes.

He looked at about 15 houses in Baltimore, including four or five from the inside. One in Arcadia, in Northeast Baltimore, interested him. It needed cosmetic work and comparatively minor repairs. He called a real estate agent he had met through a co-worker and began the bidding process.

The house was in fair condition, which translated into paying what HUD deemed fair market value. But the house was priced higher than what his lender deemed it was worth. Consequently, the loan fell through.

During a second attempt to buy the home, Young said, his agent pressed the wrong button on his computer. "So it turned out that I won the bid, but he'd done it the wrong way," and so Young went with a different broker.

Fortunately, the property was still available. So Young tried a third time with a different real estate agent. "The thing is, I had to show him how to use the Web site. It probably would have been a lot easier for everyone if I had just done it myself," he said, laughing.

A familiar predicament arose. With 48 hours to close the deal, the loan company determined the house to be worth $33,000, not HUD's $55,000, nonnegotiable price. Nonetheless, Young managed to close in time, securing financing elsewhere.

As for his house, it is "basically worth" what he paid for it: $27,500 with the half-price teacher discount. So far, he has put another $10,000 into it for basic repairs, doing most of the work himself.

Young was discouraged by his real estate agents' lack of knowledge about the HUD buying process. "I went to two different real estate agents and neither one really knew the process," he recalled. "They both said, `Oh, yeah, I know how to do that.' And they didn't."

To avoid a similar situation, HUD recommends contacting agents who are licensed and certified by the department. A list of those agents is available online at

Investing in HUD

In May, Terrence Woody and his wife moved to Baltimore, "looking for a way to make money without having to go back to corporate America." He decided to invest in real estate, namely buying HUD houses and fixing them up.

HUD regulations provide that once the initial "offer period" passes, unsold properties are available to all buyers, including investors. Woody knew beforehand the areas that interested him and those that didn't.

As he put it, "You can find a great property in a lousy neighborhood, and from where I sit it's just never worth your while. But if you find a marginal property in a great neighborhood, then I would be more inclined to put money into the property to bring it back to the neighborhood standard. That is the way I approach it."

He focused on some of the more "progressive" neighborhoods in the city, including Washington Village, Highlandtown and Charles Village.

Already, he has closed on six houses, with another four on the way. It is important to know your limits, he advised, especially for prospective HUD homebuyers who are not able to do the work themselves.

With that in mind, Woody seeks properties that need little more than new drywall and paint. He generally avoids houses that require an electrical or plumbing overhaul.

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