Today we’ll take a look at “eClick Lending,” which is the online mortgage division of parent company Celebrity Home Loans, LLC.
Their motto is to point, click, and save, a reference to their simplified digital loan process and what they refer to as “incredibly low rates.”
The company seems to be very well regarded from its past customers, with excellent reviews across different ratings websites.
Let’s learn more to determine if they’re really as good as they sound.
eClick Lending Fast Facts
Direct-to-consumer online mortgage lender that offers home purchase and refinance loans
Founded in 2007, headquartered in Oakbrook Terrace, Illinois
A dba of parent company Celebrity Home Loans, LLC
Licensed to do business in 38 states and the District of Columbia
Funds several billion in home loans annually
eClick Lending is a direct-to-consumer mortgage lender that operates online, meaning you’ll be working from afar to close your home loan.
They offer both home purchase loans for home buyers and refinance loans for existing homeowners.
As mentioned, they are a dba of Celebrity Home Loans, which apparently does several billion in loan origination volume annually.
At the moment, the company is licensed to do business in 38 states and the District of Columbia.
Those states include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Missouri, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
One nice feature about them is their loan officers are apparently available seven days a week, so there should always be someone around to help.
How to Apply with eClick Lending
To get started visit their website or call them up on the phone
If you go online you’ll need to fill out a short form and a loan officer will get in touch to discuss pricing and eligibility
They offer a digital mortgage application that lets you complete most tasks electronically
Once submitted you can manage your loan via their smartphone app or online borrower portal
You can either call them directly or visit their website to begin the loan process. Those who choose to go online can click on “Get Started Now.”
From there, you can select a short contact form to fill out for either a purchase, refinance, or mortgage pre-approval.
At that point, a loan officer will reach out to discuss loan pricing and available loan programs, and if you like what you hear, you’ll be able to formally apply.
They offer both a digital mortgage application and a free smartphone app, so you’ve got options when it comes to applying.
Once your loan is submitted, you’ll be able to view your progress, securely upload any necessary documents, and message your loan officer whenever you need assistance.
Because they’re a direct lender, every step of the mortgage process is completed in-house, which should speed things up and keep your personal details more secure.
This includes loan processing, underwriting, closing, and the funding of your home loan.
All in all, they appear to make it easy to apply for a home loan thanks to the use of all the latest technology available.
Loan Programs Offered by eClick Lending
Home purchase loans
Refinance loans: rate and term and cash out
Conforming loans backed by Fannie/Freddie
Jumbo home loans
FHA loans
VA loans
Fixed-rate and adjustable-rate mortgages in various loan terms
eClick Lending’s website is a little light on details when it comes to available loan programs, but they do offer home purchase and refinance loans, including cash out refinances.
In fact, they refer to themselves as cash out experts with unparalleled customer service. So existing homeowners who want to tap their equity may find them to be a good fit.
They also help home buyers, and say they can close loans in as a little as two weeks if you’re on a tight schedule.
It’s possible to get a conventional loan backed by Fannie Mae or Freddie Mac, a government loan such as an FHA loan or VA loan, or a jumbo loan that exceeds the conforming loan limit.
However, they may not offer USDA loans, as it’s not made clear on their website.
But you should be able to choose from a fixed-rate mortgage or an ARM, including a 30-year fixed, 15-year fixed, or a 5/1 ARM.
While they don’t appear to have a super expansive lending menu, they should be able to assist most homeowners in a variety of different scenarios.
eClick Lending Mortgage Rates
eClick Lending says it has incredibly low rates, but for whatever reason doesn’t post them online for us to see.
As such, we’ve got to take their word for it until actually speaking with a loan officer.
This isn’t necessarily a bad thing, but lenders do gain transparency points when they take the time to publicize their mortgage rates.
To get pricing, you’ll need to reach out to a loan officer, either by calling them directly or filling out a short contact form on their website.
Also be sure to inquire about any lender fees, such as a loan origination fee, or separate charges for loan processing and/or underwriting.
Once you know all those details, you can compare their mortgage APR to that of other lenders to see where they stand.
My assumption is they’re probably competitively priced because they’re an online mortgage lender with lower overhead and limited advertising (and lots of positive reviews).
And online lenders typically appeal to customers looking for low rates.
But always put in the time to gather multiple quotes to ensure it’s a good deal, or that a better one isn’t out there.
eClick Lending Reviews
Over at Zillow, eClick Lending has a near-perfect 4.97-star rating out of 5 from nearly 1,100 customer reviews.
That’s doubly impressive given the large number of reviews coupled with the excellent score.
At Bankrate, they have a perfect 5.0 rating from about 350 reviews, with 100% of reviews saying they would recommend this lender.
But wait, there’s more. On SocialSurvey, they have a 4.91-star rating from over 2,200 reviews.
And on Google, they’ve also got a 5-star rating from more than 400 reviews, so it’s clear they’re consistently making their clients very happy.
Lastly, eClick Lending’s parent company is an accredited business with the Better Business Bureau and currently has an ‘A+’ rating based on customer complaint history.
In summary, they say they make mortgages easy and have the technology and many positive reviews to back it up.
If they also offer low rates with limited lender fees, they could be a good choice for an existing homeowner looking to refinance, or even a home buyer who is comfortable working with a lender remotely.
eClick Lending Pros and Cons
The Good
Offer a digital, paperless home loan process
Can apply online and manage loan via borrower portal
Claim to have very low mortgage rates
Say they can close loans in as little as two weeks
As economic clouds loom, mortgage lenders are making it harder for some borrowers to get some types of home loans. Along with that not-so-great news, however, comes a silver lining: There’s still plenty of opportunity for borrowers to qualify for mortgages.
Why mortgage lenders are extending less credit
Mortgage credit availability declined in April to its lowest level since January 2013, according to the Mortgage Bankers Association (MBA).
“The contraction was driven by reduced demand for loan programs such as certain adjustable-rate [mortgage] loans, cash-out and streamline refinances and those with lower credit score requirements,” says Joel Kan, MBA deputy chief economist.
Back in 2013, the U.S. housing market was emerging from the Great Recession, and lenders were still wary of handing out too many loans. They gradually loosened standards in the years that followed, then tightened up at the beginning of the pandemic. Notably, MBA’s index shows credit availability is even tighter now than it was during the uncertain time at the beginning of the pandemic.
There are a few reasons lenders have become less eager to extend credit:
The banking sector has hit a rough patch. Three of the largest bank failures in U.S. history took place this spring — Silicon Valley Bank and Signature Bank in March and First Republic Bank in May. None of the three were major players in the mortgage industry, but the headline-grabbing turmoil roiled lending markets all the same.
The economic outlook is uncertain. Hoping to cool inflation, the Federal Reserve has raised interest rates at 10 consecutive meetings. While the labor market’s still cruising along — employment growth surpassed expectations in April — the Fed’s tightening will eventually result in a slowdown. That typically means an increase in unemployment rates, and more defaults by borrowers, giving lenders reason to exercise caution.
The boom went bust. As mortgage rates plunged to all-time lows during the pandemic, Americans rushed to refinance and buy homes. When rates started rising in 2022, that activity slowed — and lenders that were hiring during the boom turned to layoffs during the bust. As a result, lenders now have less capacity to handle loan applications than before.
Niche loans are most affected
While this all sounds like a problem for mortgage borrowers, it’s possible many might not even notice the pullback.
An April survey by the Federal Reserve found the stricter standards don’t affect conventional conforming loans bought by Fannie Mae and Freddie Mac — the majority of mortgages originated in the U.S. — or loans issued through the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) programs.
Instead, lenders are holding back on niche products such as subprime mortgages, home equity lines of credit (HELOCs) and non-qualified, or “non-QM” jumbo mortgages.
What tighter mortgage credit means for you
Rest assured, you still can qualify for a mortgage if you meet the lender’s credit and other approval criteria, including having sufficient employment history and income.
If you’re looking for a loan type affected by tighter availability, however, there are a few ways to boost your chances of getting what you need:
Boost that credit score as high as you can. “People with lower credit scores are having a harder time today,” says Melissa Cohn, regional vice president of William Raveis Mortgage in Delray Beach, Florida. Your credit score remains the single most important factor in determining your mortgage rate. While 740 used to be the goal to strive for, new rules from Fannie Mae and Freddie Mac have made 780 the threshold at which borrowers get the best rates. You can still get a mortgage with a credit score in the 600s, but it’ll cost you more — or might be harder to find altogether.
Make as much of a down payment as possible. More cash down translates to a lower loan-to-value (LTV) ratio — and a lower LTV means more lenders willing to extend you credit. You can still qualify with 3 percent down for a conventional loan or 3.5 percent down for an FHA loan, but you’ll pay higher fees, and mortgage insurance, to compensate for your lower upfront investment.
Don’t stretch your budget too far. If the loan you want means your mortgage payment would eat up a significant chunk of your monthly budget, a lender might reject your application, even if all your other financials check out. That’s not to say you absolutely won’t qualify — but you’ll help your case by keeping the mortgage payment in the range of 30 percent of your income. Keep in mind, too: If you want an adjustable-rate loan, many lenders only qualify borrowers based on a higher payment, rather than the initial low payment.
Build up your cash reserves well in advance. Lenders are getting stricter about the sources of your down payment and cash reserves. If you expect to use a gift from family to buy a home, put the money in the bank now, says Cohn. That “seasoning” time will make your loans look better to lenders.
Picking the right home for your family means picking the right type of home loan as well. If you lack a huge down payment, you may qualify for and benefit from an FHA loan. Here with us is our very own real estate attorney Vanessa Clayton with a simple overview of loan options for today’s families.
Hi Vanessa! Thank you for being willing to share with us. First off, you’re new to Homie. Welcome aboard and congratulations!
Thanks, I’m so excited to be here! We have such a great team at Homie that truly loves helping buyers and sellers throughout the process of representing themselves and saving money. I love getting to help our customers with what is oftentimes one of the biggest and most important transactions in their lives!
What is an FHA loan and who is it for?
An FHA loan is a type of mortgage loan that is insured by the Federal Housing Administration (FHA). FHA loans protect lenders against potential losses as a result of a homeowner defaulting on their mortgage loan. The FHA loan program is also great for homebuyers who may not have the traditional 20% down payment saved, or the best credit score, but would like to purchase a home. Buyers can leverage an FHA loan to purchase a home with a down payment as little as 3% of the purchase price.
So if FHA is an agency, is it also a bank?
No. The FHA is a US government agency created in the 1930s to help stimulate the housing market. The FHA, and specifically their loan insurance program, remains popular to this day. Buyers obtain their loan through an FHA approved lender, as the FHA is not a lender itself but is instead an insurer.
What are the benefits of an FHA loan compared to other types of mortgage loans?
The first benefit is the ability to get a loan even if you have a low down payment. Conventional loans typically require a down payment of 10-20% of the purchase price. A minimum FHA down payment can be much lower and is directly related to a buyer’s credit score. Buyers with a credit score of 580 or higher can put down as little as 3% on the purchase of their new home. Have a credit score of less than 580? Not to worry, you may still qualify for an FHA loan if you have a credit score between 500-579, but the down payment requirement will be higher.
A second benefit is that FHA loans also require the seller and lender to pay most of the closing costs. Closing costs can be a significant expense, so this is a great option for buyers who may not have cash readily available. If you’re low on cash and want a seller to pay closing costs, you’ll need to include that as part of your offer. There’s a separate FHA addendum that you’ll need to include with your contract, so make sure to let your real estate attorney know if you are going the FHA route.
What are the costs associated with an FHA loan?
When utilizing a FHA loan, buyers will pay an additional fee called a mortgage insurance premium, which is used to protect the lender against potential loss as a result of a default on the mortgage. There are two types of mortgage insurance premiums. The first mortgage insurance premium occurs up front and is 1.75% of the loan, regardless of the borrower’s credit score. The second mortgage insurance premium is an annual premium (paid monthly along with your mortgage payment). A buyer may be able to get rid of the annual mortgage insurance premium once the buyer has enough equity in the home (usually 20%).
How do buyers qualify for an FHA loan? Are there age requirements or limits on the number of homes they’ve purchased in the past or own now?
Your lender will walk you through the specific requirements, but here are some items to be aware of: FHA loans can only be used for your primary residence, and an FHA certified appraiser will need to appraise the property. There is no age restriction or restriction on how many houses you have bought in the past.
What should buyers look for in choosing a bank that does FHA loans?
Most lenders offer FHA loans, so just ask. Be aware, though, that not all FHA lenders offer the same interest rate. As with any loan, it makes sense to shop around to find the right fit. If you’re considering an FHA loan, now is a great time to visit our lending partners.
Thank you so much, Vanessa! I’ll let you get back to work and will end by simply reminding everyone that it is completely free to use our Buy Any Home program. Get the expertise of an attorney like Vanessa when you use Homie to help you buy a home without any real estate agent fees–or any fees at all, for that matter.
Government-backed mortgages, including those guaranteed by Fannie Mae, Freddie Mac, and the FHA, are expected to get more expensive in a bid to restore the languishing private market.
The details were included in a Treasury/HUD report to Congress, titled, “Reforming America’s Housing Finance Market.”
In a bid to wind down government mortgage financiers Fannie Mae and Freddie Mac, the Treasury has suggested that guarantee fees be raised, putting the price of the guarantee on a level playing field with similar private market mortgages.
10 Percent Down on Fannie and Freddie Loans
Additionally, the Treasury wants the down payment requirement on Fannie and Freddie loans to eventually rise to 10 percent.
And has recommended that the max conforming-jumbo loan limit, currently set at $729,750, expire as scheduled on October 1, 2011, reverting back to the loan limits established under the Housing and Economic Recovery Act of 2008 (HERA), which calls for a max loan amount of $625,500.
“As a result of these reforms, larger loans for more expensive homes will once again be funded only through the private market,” the report said.
The Treasury has also recommended that Fannie and Freddie’s investment portfolios be winded down at an annual pace of no less than 10 percent.
Returning FHA to Traditional Role
To prevent a flood of new business at the FHA, the Treasury wants the agency to return to its traditional role of providing affordable mortgages to low and moderate income homeowners.
To accomplish this, they recommend decreasing the max FHA loan amount to HERA guidelines and also increasing annual mortgage insurance premiums by 25 basis points.
“This will continue the ongoing effort to strengthen the capital reserve account of FHA, and put it in a better position to gradually shrink its market share.”
Finally, the report calls for full implementation of the Dodd-Frank Act’s consumer protection provisions, which would eliminate high-cost loans and incentives (yield spread premium) for mortgage brokers and other loan originators for steering consumers into such loans, while bolstering underwriting.
Currently, Fannie Mae, Freddie Mac, the FHA, and Ginnie Mae insure or guarantee more than nine out of every ten new mortgages, so it’s very clear change is necessary.
Last month, the seasonally adjusted annual rate for FHA loan applications fell to an estimated 1,450,900, the lowest January since 2007, according to the FHA Single-Family Outlook released this week.
The agency blamed severe storms throughout the country for part of the lull in applications – higher mortgage rates were probably to blame for the rest of the shortfall.
During the month, a total of 103,991 single family loan applications were received, including 55,417 for home purchases, 41,178 to refinance, and 7,396 reverse mortgages.
The total was down 7.6 percent compared to December and 17.5 percent lower than a year earlier.
Meanwhile 119,521 mortgages were endorsed during the month, including 63,887 purchase money mortgages, 49,167 refinances, and 6,464 reverse mortgages.
Endorsements were down 10.5 percent from a month earlier and 24.6 percent lower than a year ago.
At the same time, loan servicers reported to the FHA that 612,443 mortgages were in a serious default, yielding a default rate of 8.9 percent.
That was up slightly from 8.8 percent a month earlier, but down from 9.2 percent last year.
However, the FHA has already paid out 115,272 claims so far this fiscal year, 48 percent more than the 77,887 paid out during the same time last year.
Most of these claims were loss mitigation payments and a number of others were pre-foreclosures.
So far this fiscal year, the FHA has received 182 applications for its short refinance program and 363 applications for the Hope for Homeowners program, insuring 40 and 93, respectively.
Just 12 Hope for Homeowners applications were endorsed in fiscal year 2010 – Congress originally made available $300 billion for these types of loans, anticipating as many as 400,000 families would benefit from the loan program.
Today we’ll check out “Directors Mortgage,” a Portland, Oregon-based mortgage lender that says it “takes a community-first, people-focused approach” to the home loan business.
This means you can actually sit down and speak with a human being about your homeownership goals instead of filling out an online form, assuming you prefer face-to-face interaction.
And those human beings are apparently happy because the company is consistently recognized as one of the best companies to work for in Oregon. So hopefully they’ll make you happy too.
They are also one of the top philanthropic businesses in the area and involved with many of the local sports teams, including youth teams and pros like the Portland Thorns and Portland Timbers.
Let’s learn more about this local mortgage lender to see if they could be a good fit for you.
Largest privately owned mortgage company headquartered in Oregon
Locally owned and operated in Lake Oswego since 1998
Offer home purchase loans, refinances, construction loans, and reverse mortgages
Currently licensed to do business in eight Western states
Funded nearly $1.5 billion in home loans last year
Also operate a wholesale lending division called USA Direct Funding
Directors Mortgage is a retail direct-to-consumer mortgage lender that was founded back in 1998 by current CEO Mark J. Hanna.
They are one of the largest independent mortgage companies located in the Northwest, and say they don’t take a “one-size fits all” approach like some of the bigger banks.
They offer many different types of loans, including home purchase financing, mortgage refinances, construction loans, and reverse mortgages.
Directors Mortgage appears to be focused on the Western United States, with licensing and physical branches in eight states, including Arizona, California, Colorado, Idaho, New Mexico, Oregon, Utah, and Washington.
Based on the most recent HMDA data, they were most active in Oregon, where they originated nearly a billion in home loans.
They also funded about $500 million in mortgages in the state of Washington, and appear to be growing in the other states where they’re licensed.
Roughly 45% of their overall volume comes from home purchase loans, with the remainder from refinances or reverse mortgages.
Aside from their main retail lending channel, they also operate Direct Portfolio Lending (DPL), which specializes in funding for clients who don’t fit the conventional mortgage mold.
Their offerings include investor fix & flip loans, bridge loans, spec construction loans, and commercial bridge loans, with interest-only options available.
Another brand under Directors is “Mortgage Monkey,” which specializes on providing home loan financing to the LGBTQ+ community.
They also operate a wholesale lending division called USA Direct Funding for mortgage broker partners.
How to Apply with Directors Mortgage
You can apply in person, over the phone, or via a secure online application
Once signed up you can eSign disclosures and securely upload any documents needed for processing
Their in-house underwriting and appraisal system allows borrowers to close quickly
After approval, you’ll be able to track loan progress via the online borrower portal from any device
While Directors Mortgage is big on the human element of mortgage lending, they aren’t a stranger to the latest technology.
In fact, if you wish it’s possible to complete a digital mortgage application without any human assistance whatsoever.
Either way, you’ve got options, whether you prefer to apply via phone, in-person, or from the convenience of your smartphone.
In terms of tech, they allow you to eSign disclosures, scan/upload necessary documents, and track loan progress 24/7 via the secure online borrower portal.
And their in-house loan underwriting and expedited appraisal system facilitates fast closings for borrowers.
Those who are buying a home can also take advantage of the so-called “Pre-Approval Advantage Certificate.”
It provides a reimbursement of up to $5,000 earnest money (to the buyer or seller) in the event the purchase agreement is cancelled due to financing.
That could give you the edge in a competitive housing market where bidding wars are the norm.
Loan Programs Offered by Directors Mortgage
Home purchase loans
Refinance loans: rate and term, cash out, debt consolidation, streamline
Home construction loans
Renovation loans
Reverse mortgages
Conventional loans backed by Fannie Mae and Freddie Mac
FHA/USDA/VA loans
Jumbo home loans
Relocation loans
One thing Directors Mortgage isn’t short of is home loan programs.
They seem to offer just about everything, whether it’s a home purchase, construction loan, bridge loan, refinance, or a reverse mortgage.
You can get a conforming loan, jumbo, or a government-backed loan, such as an FHA loan or VA loan.
They also have a dedicated relocation team if you happen to be moving that can help with all the details, such as sending reimbursable relocation costs directly to your employer immediately after closing.
You can get a loan on any major residential property type, including a single-family home or condo, vacation home, or multi-unit investment property.
They appear to mostly originate 30-year and 15-year fixed mortgages, along with adjustable-rate mortgages like the 5/1 and 7/1 ARM.
Directors Mortgage Rates
One area where we could use some more information is in the pricing department.
Directors Mortgage doesn’t openly advertise its mortgage interest rates online like some other lenders.
As such, it’s impossible to know how competitive they are without first speaking to a loan officer about pricing and lender fees.
So if you’re planning to use Directors Mortgage, be sure to take the time to get a quote first, including what lender fees they charge if any.
Then put in the time to get quotes from other banks, lenders, and mortgage brokers to see where they stand.
While service is certainly important, so is cost if you plan to keep your mortgage for many years to come.
Directors Mortgage Reviews
On Zillow, Directors Mortgage has an excellent 4.95-star rating out of a possible 5 from about 100 customer reviews.
Many indicate that the interest rate received was lower than expected, which is good news on the loan pricing front.
On Google, their Lake Oswego location has a 4.3-star rating out of 5 from about 33 reviews, also a fairly strong rating.
You can also find ratings for other locations on both Google and Yelp, so take the time to review the location(s) nearest you.
Lastly, they are Better Business Bureau accredited, and have been since 2006.
They currently enjoy an ‘A+’ rating based on complaint history, for which just one has been closed in the past three years.
In summary, Directors Mortgage could be a viable candidate for both new home buyers and existing homeowners looking for better terms on their mortgage.
They offer a pre-approval guarantee that could give buyers a leg up, and if you want to work with a local, independent mortgage company, they’re big in the Pacific Northwest.
Directors Mortgage Pros and Cons
The Good
Can apply for a mortgage online, by phone, or in-person
Offer the latest technology and in-house underwriting for quick closings
Wide product selection to choose from including jumbos and reverse mortgages
Pre-Approval Advantage Certificate for home buyers looking for an edge
Excellent customer reviews
A+ BBB rating, accredited business since 2006
Locally owned and operated for those who like to support local
Lots of physical branches in the Pacific Northwest
Free mortgage calculators and mortgage glossary on their website
A red brick home with a “For Sale” sign in the front yard.
The minimum credit score needed to buy a house can range from 500 to 700, but will ultimately depend on the type of mortgage loan you’re applying for and your lender. While it’s possible to get a mortgage with bad credit, you typically need good or exceptional credit to qualify for the best terms.
To help consumers better understand how credit scores affect homebuying, Experian compiled information on what credit score you’ll need to buy a house and how to improve your credit leading up to a mortgage application.
What credit score do I need to get a mortgage?
Several types of mortgage loans exist, and each one has its own minimum credit score requirement. Lenders may also have additional, stricter criteria they use to determine your creditworthiness other than your credit score (more on this below).
Here’s what to expect based on the type of loan you’re applying for:
Conventional loans minimum credit score: 620
Conventional loans typically require a minimum credit score of 620, though some may require a score of 660 or higher. These loans aren’t insured by a government agency and conform to certain standards set by the government-sponsored entities Fannie Mae and Freddie Mac. They’re by far the most commonly used mortgage loans.
Jumbo loans minimum credit score: 700
A type of nonconforming mortgage loan, jumbo loans may require a credit score of 700 or higher. These loans carry higher loan amounts than conventional loans.
FHA loans minimum credit score: 500
Insured by the Federal Housing Administration, FHA loans have a minimum credit score of 500 if you make a 10% down payment or 580 if you put down 3.5%.
VA loans minimum credit score: 620
There’s no minimum credit score set by the U.S. Department of Veterans Affairs, but lenders typically require a score of 620 or higher for VA loans. These loans were created for select members of the military community, their spouses and other eligible beneficiaries.
USDA loans minimum credit score: 580
Insured by the U.S. Department of Agriculture, USDA loans don’t have a minimum credit score set by the federal agency, but lenders typically require a score of at least 580. These loans are meant for low- and moderate-income homebuyers looking to purchase a home in rural areas.
If your credit score is in great shape, you may have several loan types from which to choose. But if your credit score is considered bad or fair, your options may be limited.
Experian
How your credit score affects mortgage rates
A data table showing the affect credit scores have on mortgage rates. The APR, monthly payment, and total interest paid are shown for a range of FICO credit scores, from 620 to 850.
Although homeowners with better credit scores have larger average mortgage balances, they tend to receive more favorable borrowing rates from lenders, resulting in lower interest payments over the life of the mortgage.
Your credit score plays a role in determining the interest rate and payment terms on a mortgage loan. That’s because lenders use what’s called a risk-based pricing model to determine loan terms.
The more likely you are to pay your bills on time, based on your credit history, the lower your interest rate may be. With a less-than-stellar credit score, however, you may end up paying more.
Credit score example
Let’s say you’re hoping to get a 30-year fixed-rate mortgage loan for the average mortgage balance of $236,443. If you have good credit (say, a 700 credit score) and qualify for a 6.371% interest rate, your monthly payment would be $1,474 (excluding property taxes, homeowners insurance and private mortgage insurance), and you’d pay a total of $294,369 in interest over the life of the loan.
But if your credit needs some work and you qualify for a 7.738% interest rate instead, that increases your monthly payment to $1,692 and your total interest burden to $372,658—a difference of $78,289.
Other factors lenders consider
Mortgage lenders don’t just look at your credit score when determining your rate, though. They’ll also consider your debt-to-income ratio (DTI)—how much of your gross monthly income goes toward debt payments—as well as your down payment and available savings and investments.
So while it’s important to work on your credit score before you apply for a mortgage, avoid neglecting these other important areas of your financial situation.
Images Products // Shutterstock
Can you get a mortgage with a bad credit score?
A millennial man searching information online, working with computer laptop.
It’s possible to get approved for a mortgage with poor credit. But just because you can, it doesn’t necessarily mean you should. As previously discussed, even a small increase in your interest rate can cost you tens of thousands of dollars over the length of a mortgage loan.
If you’re planning on buying a home and you have bad credit, here are a few tips that can help you potentially score a decent interest rate:
Think about applying for an FHA loan.
Make a large down payment to reduce the risk to the lender.
Get preapproved with multiple lenders.
Consider working with a mortgage broker who may be able to match you with a specialized loan program.
Pay down large credit card balances to reduce your credit utilization rate.
Work on paying down other debts to reduce your DTI.
Consider asking someone with good or exceptional credit to apply with you as a cosigner.
There’s no guarantee that these actions will help you qualify for a mortgage loan with good terms, but they can improve your odds.
Experian
How to prepare your credit for a mortgage
A data table showing the average mortgage by FICO score range, which goes from 350 to 850. The average mortgage balance ranges from $159,002 and $260,041.
If you’re thinking about buying a home soon, it may be worth spending some time getting your credit ready before you officially begin the process. Here are actions you can start taking now, some of which can improve your credit score relatively quickly.
1. Check your credit score and reports
Knowing where you stand is the first step to preparing your credit for a mortgage loan. You can check your credit score with the three national credit reporting agencies, and if it’s already in the 700s or higher, you may not need to make many changes before you apply for a preapproval.
But if your credit score is low enough that you risk getting approved with unfavorable terms or denied altogether, you’ll be better off waiting until you can make some improvements.
You can get a free copy of your credit report from each of the three national credit reporting agencies weekly at AnnualCreditReport.com through December 2023, then every 12 months after that.
Once you have your reports, read through them and watch for items you don’t recognize or you believe to be inaccurate. If you find any inaccuracies, you can ask your lender to update their information with the credit reporting agencies. You also have the right to dispute the items directly with the agencies. This process can improve your score quickly if it results in a negative item being removed.
2. Pay down debt
Paying off other debts can not only lower your debt-to-income ratio but also help improve your credit score. That’s especially the case if you have credit card debt.
Your credit utilization rate—how much credit card debt you have in relation to your total available credit—is an important factor in your credit score. While many credit experts recommend having a credit utilization of 30% or less, there is no hard-and-fast rule—the lower, the better.
Because your credit utilization rate is calculated each month when your credit card balances get reported to the credit bureaus, your credit score could respond quickly if you pay down high credit card balances.
3. Avoid applying for new credit
Virtually every time you apply for credit, the lender runs a hard inquiry on your credit report. In most cases, you’ll see your credit score drop by fewer than five points with one inquiry, if at all.
But if you have multiple inquiries in a short period, it could have a compounding effect and lower your credit score even more. (One exception is when you apply for several of the same type of loans, such as a mortgage or car loan, as a way to compare offers. If you do so in a short time period, all the inquiries will be grouped into one, limiting the impact on your credit score.)
Also keep in mind that adding new credit can increase your DTI, which is a crucial factor for mortgage lenders.
4. Consider waiting
If your credit report includes some significant negative items, such as a bankruptcy, collection account or repossession, it may take more time for your credit score to recover than from high credit card balances or one late payment. In this case, it may be a good idea to wait until you can build a more positive credit history before applying for a large loan.
Waiting could also be worthwhile when the housing market is hot, or if interest rates are on the rise. Depending on how much flexibility you have, you may benefit from waiting until the market cools off, giving buyers more leverage than sellers, or until interest rates start to decline again.
Think about more than just the loan terms
A mortgage is a long-term financial commitment. But getting into a home with less-than-perfect terms now can still make sense in certain situations.
If you live in an area where a mortgage payment would be cheaper than what you pay in rent, for example, even a loan with a slightly higher interest rate could save you money in the short term. And if owning your own home improves your overall quality of life, that could be worth paying a little more.
This story was produced by Experian and reviewed and distributed by Stacker Media.
The nation’s top mortgage lender has lowered the minimum credit score required for an FHA loan, according to American Banker.
Going forward, the bank is accepting FHA loan applications from borrowers with credit scores as low as 500, though they must come up with a 10 percent down payment and sport a maximum debt-to-income ratio of 31 percent.
That seems like a pretty safe bet, given the fact that home prices have likely seen bottom or are relatively close to bottoming out.
Previously, Wells only accepted FHA loans from borrowers with credit scores of 600 and upwards.
The move was made following pressure from HUD, which oversees FHA lending, along with affordable housing advocates, largely because FHA loans are intended to serve the underserved, not everyday Joes.
Back in November, Wells and other top lenders were actually raising minimum credit score requirements on FHA loans…
It is believed that loans originated via mortgage brokers and correspondent lenders still carry harsher underwriting standards, with the minimum credit score 620 or 640.
At the end of the third quarter of 2010, just 3.8 percent of FHA loans had scores below 620 or no credit score, compared to 50.4 percent as of the end of 2008.
Back in mid-2010, the FHA announced a minimum credit score of 500 on all loan programs, with a 580 score needed to qualify for the flagship 3.5 percent down payment program.
Last Updated on February 25, 2022 by Mark Ferguson
Buying one rental property may not make you a ton of money right away. However, rentals can be an amazing investment when held for the long-term and when multiple properties are purchased. There is also the opportunity to buy larger commercial or multifamily properties, which can increase returns as well. With a good rental property, you should be making money every month (cash flow); you should make money as soon as you buy by getting a great deal; you will have fantastic tax advantages, you can use financing which greatly reduces the amount of cash needed; and the property value and rents will most likely go up in value over time.
Rental properties have been a great investment for me. I make more than $100,000 a year from the cash flow on my rental properties after all expenses including mortgages, property management, maintenance, and vacancies. I now have 20 rental properties which are a mix of residential and commercial. I bought my first rental property in December of 2010 for $97k. I started with residential properties but now buy almost all commercial, including a 68,000-square-foot strip mall in 2018.
You cannot buy just any property and turn it into a rental if you want to make a lot of money. You have to buy properties below market value with great cash flow to be a successful rental property owner. Not only do I make money every month from my rentals with minimal work, but my rentals have also increased my net worth thanks to buying below market value and appreciation (I don’t like to count on appreciation, but it is a nice bonus). This is not just a hypothetical article. I have owned rentals for many years, kept track of their returns, and written many articles about what I have learned.
The cool thing about real estate is while I have more than $6,000,000 worth of rental properties, it did not take millions of dollars to buy them.
Why did I choose rentals?
One of my passions is automobiles. I purchased a 1986 Porsche 928 a few years ago, and I absolutely love that car. I also have a 1999 Lamborghini Diablo, a 1981 Aston Martin V8, a 1998 Lotus Esprit Twin Turbo, and a few other cars. In my early 20s, I never thought I could afford any of these cars in my early. However, I started to make decent money as a real estate agent in my mid to late 20s. The problem was I was not saving much money. I just kept spending it. I knew if I ever wanted to get ahead in life and be able to afford these cars, I would have to invest the money I was making. I researched everything I could and decided rental properties were the best investment. I worked very hard to save money to buy my first rental.
As soon as I started buying rentals, I could see the fruits of my labor. I was making money every month from rent, I made money as soon as I bought the house because I bought it below market value, and it was forcing me to save money. I wanted to buy as many as I could, and I knew with steady money coming in every month from the rentals I could someday feel comfortable buying expensive cars.
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Why are rentals a good investment?
Not all properties are a good rental, but if you can find properties that are, they can be an amazing investment. A rental property should have a number of attributes
Cash flow
Good rentals will make money every month after paying all expenses. The expenses should include mortgage, taxes, insurance, maintenance, vacancies, and property management. The cash flow is the rent minus all of these expenses. Some people like to shoot for different numbers, but I always liked to see $400 to $500 in cash flow per property.
Buy below market
I get a great deal on every rental I buy. I don’t want to pay retail when I can pay to 20% to 30% less than retail. It is not easy to get great deals, but it is possible. On almost every house I have ever bought, I got a great deal. That instantly increases my net worth, makes me more cash flow, and looks better on my balance sheet for banks.
Leverage
You can put as little down as 20 percent when buying rentals. You can put even less down when buying a property as an owner occupant and then turning the property into a rental.
Tax advantages
Most expenses on rental properties are deductible or depreciable. You can also depreciate the structure of a rental property, which means you can save thousands of dollars each year on your taxes. You can also complete a 1031 exchange on rentals to avoid capital gains taxes.
Appreciation
Many people only talk about housing prices when comparing rentals to the stock market, but appreciation is a bonus. It is not what you are shooting for when buying a rental property because no one knows for sure if prices will go up or when.
It is not easy to find rental properties that are a good investment. It takes me months to find great deals that make over $500 a month like mine typically have, and they are not available in every market. My typical rental property used to cost between $80,000 and $130,000, and it rented for $1,200 to $1,500 a month. I put 20 percent down on the properties and finance the rest with my portfolio lender. I usually end up spending $25,000 to $35,000 in cash to buy each rental property. Cash flow is not the only benefit of rental properties. I slowly pay down the mortgage every month; I have great tax advantages; and they will most likely appreciate.
I am able to save that much cash from each rental property because I make a very good living as a real estate agent as well as from fixing and flipping houses. I like to have nice cars and a nice house, but I always make sure I am saving and investing money first. There are ways to buy rental properties with little money down, but I think you will get further ahead in life by saving as much as possible and investing wisely.
How much do you need to buy a rental?
I go over the exact cost of a rental property here, but let us assume that it costs $30,000 to purchase and repair one rental. You do not have to invest $90,000 a year to buy three rentals a year because you can begin refinancing rental properties after you own them for a year and take cash out to invest in more rentals. You can also save the cash flow from your rental properties to buy more rental properties. I usually buy my properties for about $100,000, with a four percent interest rate and 20 percent down, which leaves a payment of $381 for principal and interest. Those numbers combined with rents from $1,200 to $1,500 a month leave me with at least $500 a month in income from my rental properties.
How much should a rental property cash flow?
It is not easy to make $500 a month in cash flow from a single rental property. I detail how to calculate cash flow here, and I created a cash flow calculator to help people determine cash flow. Cash flow is not the rent minus the mortgage payment: you must consider many other factors. My rents range from $1,250 to $1,600 a month, and my mortgage payments range from $450 to $650 a month. I have to account for maintenance and vacancies on my rental properties, which leaves me with about $500 in profit each month. I buy my properties for $80,000 to $130,000 and usually make quite a few repairs before I rent them out.
What are the long-term returns for someone with little money?
Investing in rental properties can provide fantastic returns when you have a lot of money to invest. Even if you have little money, you can invest in rental properties. I am going to walk through how many years it will take someone to accumulate one million dollars from investing $7,500 a year into long-term rental properties.
The more money you make and save, the easier it is to make one million dollars from rentals. However, even people who do not make a lot of money can get there, although it may take a little longer. I am going to write out this plan assuming someone has a $75,000 salary and can save 10 percent of their income a year.
When you first start out, $7,500 does not go very far, and it takes a lot of money to buy an investment property. Luckily, there are many ways to buy a rental property with much less money if you are an owner occupant or use some of the techniques I discuss here. In the first year, the best bet is to buy a HUD home or REO that needs some work but will still qualify for an FHA or conventional loan. The key to my strategy is buying houses below market value. HUD or REO houses are a great way to do that. We will assume the investor can buy a house similar to the ones I purchase in my area, which cost around $100,000. There are closing costs that the buyer is charged when they get a loan, but you can ask the seller to pay most of your costs.
Buying as an owner occupant year one
The first step is to buy a house. But you cannot buy just any house; you want to buy a house as an owner occupant that you can later turn into a rental. You also want to get a great deal on a house to gain instant equity. To get a great deal on a house, you may have to buy one that needs some repairs. With a HUD home, you can roll $5,000 of the repairs needed into the loan with the FHA escrow and only put 3.5 percent down for the down payment. If the home needs a lot of work, you could use an FHA 203K loan to roll more repairs into the loan. We will assume this house needs $4,000 in work to qualify for a loan, and you bought a HUD home with the costs rolled into the loan. With an FHA loan, you have to pay mortgage insurance every month and an upfront mortgage insurance premium (which could be $200 or more a month).
With a conventional loan, mortgage insurance is much lower than FHA, and you might be able to remove it after two years. However, you may not be able to roll the repairs into the loan, but you could get the seller to fix some items before closing. If the repairs are cosmetic items, you should be able to get a loan without making the repairs before closing. I will assume the total cash needed to close on this hypothetical house is about $5,000. Hopefully, this house was bought below market value because it needed some repairs and was a foreclosure. Once the house is repaired, it should be worth around $125,000.
Since you bought this house as an owner-occupant, you have to live in the home for at least one year.
Year two
After one year, you have gained about $22,000 in net worth; $125,000 – $100,000 purchase price – $4,000 repairs rolled into the loan + $1,000 gained in equity pay down. In year one, no rent was collected because the home was owner-occupied to get a low down payment. In year two, the house is rented out and you can buy another owner-occupied home using the same strategy. When you try to buy a home right away, you won’t be able to count the rent from the first house as income right away. It is best to buy houses priced low enough that you can qualify for two houses at once to make this work. Otherwise, you may have to wait up to a year for the rent to count as income and can buy again.
You can only have one FHA mortgage at a time, so this time you have to get a conventional loan with 5 percent down. In the second year, you have saved up another $7,500 from your job and have $2,500 left over from the first year for a total of $11,500 saved. The second home also costs $100,000, and the seller pays 3 percent closing costs. The down payment needed is $5,000, and $5,000 in repairs are needed on this second house. The total cash needed to buy an owner-occupied home is $10,000 and the repaired value is $125,000.
The first house is rented out for $1,300 a month (which I will do all the time on a $100,000 purchase), and the payment is $550 with taxes and insurance. Add vacancy, maintenance, mortgage insurance and we’ll assume $300 a month in positive cash flow.
Year Three
In the second year, you made $25,000 from buying house number two (equity) and made $3,600 from cash flow. You also made $2,500 from equity pay down on both loans (I am assuming each loan will pay down $500 more each year). In year two, all the savings was used from year one, but you saved $7,500 and made $3,600 in cash flow for a total of $11,100 savings. Buy another house using an owner-occupied loan and use $10,000 of cash. Net worth increases to $53,100 after adding the equity pay down, cash flow and equity gained in the purchase of a new home.
The second house is rented out again using the same figures, although the mortgage insurance may be less because we are using a conventional loan instead of an FHA loan.
Year Four
Another house is bought below market value in year four. Cash flow increases to $7,200 a year plus $1,100 in previous savings and $7,500 saved this year. You now have $17,300 cash saved up before we subtract another $10,000 for the purchase of a new house as well as cash for the repairs. Net worth has increased $25,000 on the purchase plus $4,500 in equity pay down. The total net worth increase is now $90,800 for the last four years.
You own four houses and three of them are rented out. At this point, you may be able to remove the mortgage insurance on the conventional loans that have been held for two years, but I am not going to in my calculations to keep things simple and conservative.
Year Five
In year five, we repeat the entire process again and come up with the following numbers. Cash flow increases to $10,800 and previous savings $5,800 and $7,500 saved up equals $25,600 saved cash. The investor purchases another property and uses $10,000 in cash to leave $15,600 in his cash account. Net worth increases by $7,000 for equity pay down: $10,800 for cash flow and $25,000 for the purchase of a new property. The total increase in net worth is now $133,600.
You may have noticed this investor just mortgaged his fifth house. For many people, getting a loan on more than four houses is very difficult. However, the investor is buying houses as an owner occupant, which makes it much easier to get a loan.
Year Six
The same process is repeated all over again. Cash flow is $14,400, previous cash is $14,100, savings equals $7,500 for $37,500 cash minus $10,000 for a new purchase. The investor has $27,500 left in his bank account. He increases his equity pay down to $13,500, has an increase of $25,000 in net worth from a purchase, and an increase in net worth from cash flow of $14,400. He now has increased his net worth by $186,500.
Year seven
In year seven, the seventh house is purchased. Cash in the bank equals $26,000 from previous savings, $18,000 in cash flow, and $7,500 in new savings, which totals $53,000. You are now able to buy two properties this year! Buy another owner-occupied property using $10,000 and an investor-owned property.
To purchase an investment property, we need to put at least 20% down, and we still need to make repairs. We are buying below market value still, so we are going to assume we are adding $25,000 more a year in equity and $3,600 more a year in cash flow. Estimated costs for down payment and repairs is $32,000 to buy an investment property. You have $11,000 of cash left after buying two properties this year. Net worth increased by $60,500 after adding the usual amounts to total $247,000.
Year eight
Year eight is very exciting because we get to add two properties into the mix instead of just one. With the extra houses added, increased cash flow, and continued equity pay down, our net worth increased $98,200 in just one year! Total net worth is now $345,200, and you are making real progress! You have $42,200 saved up after buying another house in year eight as an owner-occupant, so you can buy another investment property, but won’t, because our margins will be too thin with only a couple thousand in savings.
Even though you are still making only $75,000 a year, you increased your net worth by almost $100,000 a year. There are not many people who can increase their net worth by more than they make in a year!
Year nine
In year nine, you are adding $26,500 in equity pay down, $28,800 in cash flow, $25,000 in built-in equity with purchases, for a total net worth increase of $80,300. Your total net worth increase over nine years is now $425,500. You also have $60,000 saved up after paying for one house as an owner occupant, which is enough to buy another investment property, leaving $26,500 cash left over!
Year ten
In year ten, you have enough cash to buy two more properties and have $28,000 in cash left over. Net worth increases by $114,500, bringing us up to a total increase of $540,000.
Year eleven
You can buy two more properties and increase your net worth by $129,200 for a total of $669,200. Cash flow is at $43,200 a year, and there is $36,700 of cash left over after buying two more properties. You could buy a third house this year but decide not to stretch your limits. You need to make sure you have plenty of reserves for the rentals.
Year twelve
This year, you buy three houses because there is $94,600 in cash available. After buying the three houses, there is $22,100 cash left in savings, equity was paid down, and $44,500 and $50,400 in cash flow was generated. Total net worth is now $814,100! You are getting closer to making one million dollars investing in real estate!
Year thirteen
You have increased your net worth by $190,200 this year because you bought three houses last year. The total net worth increase is now $1,004,300! Your actual net worth will be higher than this because I did not calculate savings from your income into the net worth, just the gain from buying rental properties. Cash flow is now $61,200 a year, and you have paid off $54,000 of equity in one year!
You own 16 rental properties which are producing over $60,000 a year! The incredible part is we did not increase the rents at all, even though they are likely to go up over thirteen years. We assumed there was no appreciation, even though there likely will be over that time. Due to the tax advantages of rentals, you are probably taking home as much in passive income from your rentals as you are from your job.
Things we did not consider
This was a very basic calculation for how to make one million dollars investing in rental properties. It would take a book to go through all the variables and possible roadblocks that might come into play. Here are a few items we did not consider, which would have an impact on the time it takes to reach one million dollars in increased net worth.
Inflation will increase the prices of homes and wages as well as rents. While the investor has to pay more for houses each year, he will also be making more and saving more. The biggest factor is the rent increases. His rent on the first houses he buys will increase as time goes on, but his payments will stay the same. His cash flow will increase greatly as time goes on, which we did not account for.
Taxes were not accounted for either because that gets very complicated. The cash flow the investor is making would be income, but the investor could offset that with depreciation from the rental properties. I assumed those two factors even themselves out.
Investment property purchases had 20 percent down, where the owner-occupant purchases had 5 percent down. There should be an increase in cash flow on the investment property purchases because of the lower down payment, but I left them the same to make the math easier.
Refinancing was not considered either, but the investor could easily have refinanced a couple of properties to get more cash out to buy more rental properties. This would have increased cash flow and net worth due to the increased number of properties purchased.
Obtaining more than 4 or more than ten mortgages can be difficult. I am assuming the investor is able to get as many loans as possible with a lender. I can have as many loans as I want with my portfolio lender, but many people cannot. This would be a roadblock once he reached ten financed properties.
Buying owner-occupied properties each year is possible but may not be realistic. Moving thirteen times in thirteen years may put a bit of stress on the family!
I also assume the investor manages his homes himself, which is doable in the beginning but it maybe tough when he gets ten homes or more.
How Did I Build a Rental Property Portfolio
I have 20 rentals now, but I did not buy them overnight. I started in 2010 and slowly bought them over the last 9 years. I bought 1 in 2010, 2 in 2011, 2 in 2012, and kept building from there. I worked very hard to make a great living as a real estate agent, but I also used real estate to buy more rentals.
I bought my first rental by refinancing my personal house and taking cash out of it. I also refinanced some of my rentals along the way so that I would have more capital to buy even more rentals. I was lucky that our market appreciated so much, but I also bought every rental property way below market value, which allowed me to take cash out when I refinanced.
I stopped buying residential rentals in 2015 because the market in Colorado became too expensive. However, I was able to invest in commercial rentals in my area and cash flow on them. There are a lot of different ways to invest in real estate!
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How much have my rentals made me?
I put together some stats to show how much rentals made me after four years of owning them. It has been a few years since then, and things have gotten even better! At the time, I had bought 11 rental properties. After doing some calculating, I discovered my rental properties have appreciated and been bought cheap enough to produce a gain of $600,000 since December of 2010! It is important to remember that net worth is all on paper, and I would not realize $600,000 in profit if I decided to sell all of my rental properties today. I would have to have selling costs, and I would have a large tax bill if I sold my rental properties.
How much equity have I built with rentals?
One thing I have done with every rental property I buy is buying them below market value. I try to buy my properties at least 20 percent below the current value, and if a home needs repairs, I want that rental property worth 20 percent more than the price I paid plus the cost of the repairs. For example; if I buy a rental for $100,000 and it needs $20,000 in work, I want it to be worth $144,000 or more when I am done repairing the home ($100,000 + $20,000 = $120,000 * .20 = $144,000). That means I usually gain at least $20,000 in net worth on every rental property I buy. The 11 rentals I have bought have gained at least $220,000 (I buy many properties at more than 20 percent below market) just by buying homes at the right price.
I also have been lucky that prices have increased significantly in Northern Colorado in the last few years. I would say lucky for the sake of calculating net worth, but the increase in prices has made it harder to buy cheap rental properties with great cash flow. If you want to know how much my houses have appreciated, I broke down each rental and how much money it has made below.
Rental 1
I bought my first rental property for $96,900 on 12/5/2010. At the time I bought it, I knew it was worth at least $125,000, which is not a huge spread between the buy price and fair market value, but the home needed less than $2,000 in repairs.
The house is now worth at least $165,000 and most likely more. I had it appraised earlier this year, and the appraisal was $165,000 and our market values have increased since that time. If the house is worth $165,000, then my net worth increased about $66,000 after you subtract the repairs. The home was rented out for 1,050 a month when I first bought it and now is rented out for $1,400 a month.
Rental 2
I bought rental property number 2 for $94,000 on 10/5/2011. This home needed much more work than number one, and I spent about $15,000 repairing the house. At the time I bought this house, I thought it was worth $140,000 after it was repaired, and this house is now worth around $175,000. That leaves me with a net worth increase of about $66,000 on this property as well.
This house has been rented to my brother-in-law since I have owned it. The rent has been steady at $1,100 the entire time but could be $1,400 to $1,500. My brother-in-law has a house under contract and will be moving soon.
Rental 3
I bought my third rental property for $92,000 on 11/21/2011. This house needed repairs, and I spent about $14,000 getting it ready to rent. At the time I bought this house, I thought it was worth $135,000 fixed up, and this house is now worth around $170,000, which creates a net worth increase of $64,000.
This home has been rented to the same tenants for $1,250 a month, but we just raised the rent this month to $1,300 a month. It would probably rent for $1,400 to $1,500 to a new tenant.
Rental 4
I bought rental property number 4 for $109,000 on 1/25/2012. This home also needed about $14,000 in repairs before it could be rented. At the time I bought this house, I thought it was worth $145,000. This house is one of my most valuable rental properties and is worth $185,000 in today’s market. That leaves a net worth gain of $62,000.
This home was rented for $1,300 up until this year when I rented it to new tenants for $1,500 a month.
Rental 5
I bought rental property number five for $88,249 on 12/14/2012, and it needed more repairs than the others. The market had definitely begun to improve at this point, and finding a home that was under $100,000 was very tough. This home was a good deal, even though it needed $18,000 in repairs. I thought it was worth around $130,000 when I bought it, and I now think it is worth $165,000. That leaves a net worth increase of $59,000.
This home has been rented to the same tenants for $1,200 a month.
Rental 6
I bought rental property number six for $115,000 on 3/7/2013. This house needed about $15,000 in repairs, and I thought the property was worth about $150,000 after it was fixed up when I bought it. It is now worth $170,000, and that leaves a net worth increase of $40,000.
This home was first rented for $1,300 a month until earlier this year it was rented for $1,400 a month.
Rental 7
I bought rental property number 7 for $113,000 on 4/18/2013. This house needed only $9,000 in repairs, and I thought it was worth $155,000 when I bought it. This neighborhood has done great, and the home is now worth $185,000, which leaves a net worth increase of $63,000.
This home has been rented for $1,400 a month since I bought it.
Rental 8
I bought rental property number 8 for 97,500 on 11/18/2013. The home needed $15,000 in repairs, and I thought it was worth $150,000 once fixed up. It is now worth $165,000, and that leaves a net worth increase of $52,000.
This home has been rented or $1,400 a month since I bought it.
Rental 9
I bought rental property number 9 for $133,000 on 2/14/2014. This home only needed $4,000 in work before it was rented, and I thought it was worth $155,000 after it was repaired. I think it is worth $165,000 now, and that leaves a net worth increase of $28,000.
This home is rented for $1,400 a month.
Rental 10
I bought rental property number 10 for $99,928 on 4/13/2014. The home only needed $3,500 in repairs before it was rented, and I thought the home was worth $125,000 when I bought it. I think it is worth about $130,000 now, leaving a net worth increase of $26,500.
This home is rented for $1,250.
Rental 11
I just bought rental property number 11 on 7/24/2014. This house will need about $15,000 in repairs, and I paid $109,318. I think this house is worth $155,000 repaired, leaving a net worth increase of $30,000.
I think this home rents for $1,400 a month.
What is the total gain?
If you add up all these numbers, my total net worth has increased by $556,500, but these numbers do not tell the entire story. I had more costs than I listed when I first bought these houses, but I did not go back through each closing file to get those exact costs. On many of these properties, I had the seller pay some closing costs, which covered much of my buying costs. I also had some carrying costs while I was getting the properties repaired and they were not rented out yet. However, I also did not include any of my cash flow or the money I made on these properties since 2010. I used all of my cash flow to pay off rental property number 1, which added up to over $70,000. That $70,000 in cash flowdefinitely covers all the closing and carrying costs I had on each property and went directly to increasing my net worth by paying off a loan. Speaking of paying down loans, I did not include the equity I have gained over the last 3.5 years by paying down my loans. I have paid down thousands of dollars of loan balances with regular payments on my rental properties.
Net worth is not money in my pocket but what I am worth on paper. Even though it is cool to see this number increase over time, this money is not all readily available. I would have to sell my rental properties to see this money, and I would not see all of it. There would be selling costs when I sell the properties and taxes owed once I sold them. Since I am using the depreciation on the rental properties to save me in taxes, I would have a higher than normal tax bill because I would have to recapture that depreciation.
What about in 2019?
I have 20 rentals that have increased my net worth about $3,000,000 in the last 9 years. I have gotten lucky that Colorado has appreciated like crazy, but they were still awesome deals even without that appreciation. They make me about $13,000 a month after all expenses. The cool part is I have spent less than $350,000 on the properties after refinancing some to take money back out. Talk about an amazing investment!
You can see all my rentals here.
My book on making money with rental properties
I provide a lot of information on my blog and YouTube channel, but I also have written six books. My book Build a Rental Property Empire has been a best-seller for years. It goes over everything I do to find, finance, repair, manage, and even sell my rentals. I also added a commercial chapter to go over that aspect as well. You can find the book on Amazon as a paperback, audiobook, and Kindle. Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely.
Conclusion
It can take time to make a lot of money with rentals, but it is possible. Over the years I have bought a 1999 Lamborghini Diablo, a 1998 Lotus Esprit, a 1981 Aston Martin, and more thanks to the rental properties. The rentals have also allowed me to be aggressive with my house flipping business because I know I have that cash flow coming in every month. We flipped 26 houses last year!
HUD homes are a great opportunity to get a great deal, but HUD has very different rules for investors and owner-occupants. HUD homes are foreclosures that had FHA loans, which are now owned by the United States government. I used to sell HUD homes as a real estate agent and was a part of hundreds of transactions involving HUD (I mostly invest in real estate now). HUD can be very confusing to those are not familiar with there system, but it makes sense once you know all the rules. There are different rules for investors and owner-occupants. There are also special programs for HUD homes like the good neighbor next door, and the $1 down payment program. We will go over everything in this article!
What are HUD homes?
HUD homes are government-owned foreclosures. HUD stands for the Department of Housing and Urban Development. HUD oversees the FHA loan program, which stands for Federal Housing Administration. FHA loans are low-down-payment loans that are only owner-occupied buyers are eligible for. The loans are obtained from banks, but the government insures them. If the loans go through foreclosure the government will sometimes take over the loan and the property from the bank. The bank has the option to keep the property, and HUD does not approve every FHA insurance claim so not all FHA foreclosures go back to HUD. When HUD takes back an FHA foreclosure they will use their own online bidding system to sell the homes in most cases. They will also use bulk sales (hundreds of millions of dollars of homes) to sell packages of properties.
Where can you find HUD homes?
The most important thing to know about HUD homes is HUDHOMESTORE.COM. HUD lists every house they have for sale on this website and anyone can view it. To search for HUD homes, simply enter the state you are looking in and any other criteria you want to narrow it down with; city, zip code, address, etc. Once HUD accepts a bid they remove the property from Hudhomestore.com. If you see a sign in the yard or property in MLS but can’t find it on Hudhomestore.com they may have already accepted a bid. There are a few other reasons the property may not be on the site including price changes or new appraisals.
Check out the video below to see how to look up and bid on HUD homes:
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How can you submit a bid to buy a HUD home?
HUD has very strict bid periods on who can bid and when. When HUD homes are first listed there is a bid period for owner-occupants, non-profits or government agencies. Investors cannot bid during this bid period, and the length of the bid period varies depending on the home. HUD homes have an appraisal done before they are listed and homes that will go FHA are listed as insured and the properties that won’t go FHA are listed as uninsured.If a property is insured, investors cannot bid for the first 15 days! If a property is uninsured, investors cannot bid for the first 5 days.
When you are looking at a listing on Hudhomestore.com look for the period deadline, it will give the last day owner-occupants, non-profits and government agencies can bid. Investors can place a bid the next day after the period deadline expires. If a property is still on Hudhomestore.com the day after the period deadline expired, it does not mean HUD did not receive an acceptable bid. HUD reviews bids the first business day after the period deadline, and the property could be on the website for a short time in the morning while they review bids.
This can be very confusing the first time you try to process the information, but it gets easier the more you use Hudhomestore.com. The thing to remember is investors can bid on the first day after the period deadline. If you are unsure who can bid, HUD will list who the eligible bidders are on Hudhomestore.com. When investors can bid it will say “All bidders.” A good real estate agent who knows the HUD system can walk you through the process as well.
In fact, you have to use a real estate agent who is approved and registered in the HUD system to bid on HUD homes.
What does FHA insured with repair escrow mean on HUD homes?
HUD does not allow any repairs to be made to properties and typically does not repair any of their properties. However, HUD wants to sell homes to owner-occupied buyers and many HUD homes need some repairs that would not allow them to qualify for FHA financing. HUD uses an FHA repair escrow to help owner-occupied buyers get into these homes. The amount on Hudhomestore.com under FHA repair escrow is the amount that a HUD appraiser has determined it will take for the home meet FHA guidelines. The escrow could be $0, in which case the home does not need any repairs in order to go FHA. If there is any other amount, the home will have to have some work done to qualify for an FHA loan.
The escrow repair amount is added to the buyer’s loan at closing, it is not a gift from HUD. The work is to be done after closing by licensed contractors within 90 days, and the lender will pay out the escrow amount directly to the contractors.
The details of each item that needs repair are listed under the addendum on Hudhomestore.com. The total repairs cannot exceed $5,000 for the FHA repair escrow. HUD adds a ten percent cushion if the repairs cost more than expected, so technically there could be $5,000 in repairs and a $500 cushion for a total escrow amount of $5,500.
If the buyer gets a new appraisal that shows more work is needed, that must be added to the FHA repair escrow.
If the home is marked as uninsured a buyer cannot get a typical FHA loan, but they can use an FHA 203k loan.
Can I use the HUD repair escrow on other types of loans?
No, the repair escrow can only be used on FHA loans.
Can you use FHA 203k rehab loans on HUD homes?
If a home needs more than $5,000 in repairs to qualify for FHA, there is still an FHA option. The FHA 203k rehab loan is a great program that allows a buyer to make repairs after closing and finance them into their loan. There is no limit to the dollar amount of repairs that can be made, but it can be a complicated process. This program can be used on a house with less than $5,000 in repairs as well if the buyer wants to make more repairs than FHA requires. The loan can also be used on uninsurable homes as long as it is marked on Hudhomesore.com that an FHA 203k is being used.
A 203k loan requires two appraisals, one for the as-is value and one for the after repaired value. The loan also takes longer to close and has a few more fees than a normal loan, but it is a great option for those looking to make major repairs.
What is the Good Neighbor Next Door Program?
The Good Neighbor Next Door Program (GNND) is a HUD specific program geared towards EMTs, teachers, firefighters, and law enforcement. HUD designates certain houses for this program and they will give a 50% discount to qualified buyers! In order to find these properties, go to Hudhomestore.com and click on Good Neighbor Next Door Program in the blue box. Then click on your state on the map to the right of the blue box. This will pull up all GNND properties in your state. Do not be surprised if there are not many properties available as HUD designates very few properties for this program.
HUD also has very strict policies regarding who can bid on GNND properties. The buyer must be a full-time employee in their field, work within a certain mileage of the property, and live in the property for three years. Bidding on a GNND is very simple. Your agent submits the full price in the GNND bid period and if HUD accepts your bid, they automatically discount the property 50%. These properties are not always in MLS, so check Hudhomestore.com frequently to find these listings.
HUD does not pay a commission on these properties to the listing or selling agent. Many times the agent representing the buyer will require the buyer to pay a commission directly to the buyer’s agent. If more than one buyer bids on these properties, HUD will randomly select the winner.
HUD bidding timelines
For insured homes:
15-day owner occupant, government agencies, and non-profit only bid period. The first ten days of this bid period HUD collects all the bids and subsequently review them on the next business day. Thereafter for the next five days, HUD reviews any bids received the following day. (not sure if they review them the same day or the day after the bid is received during this time)
Investors can bid on the 16th day the home has been actively for sale. You can see this date by looking at the period deadline. Investors can bid on the next day after this deadline.
If the price is lowered, the owner-occupant period does not start over. Investors can bid right away.
For uninsured homes:
7-day lottery bid period. Government agencies and non-profits only can bid. The home is listed on HUDhomestore, but not on the MLS.
5-day owner occupant, government agency and non-profit only bid period. HUD accepts bids the first five days and opens them the next business day. Investors can bid on the 6th day.
If the price is lowered, the owner-occupant period does not start over. Investors can bid right away.
Are HUD homes listed for sale on the MLS?
HUD will list some properties differently depending on the repairs needed and potential buyers’ qualifications. On uninsured properties, HUD will list them on Hudhomestore for 7 days, but the only eligible bidders are non-profits and government agencies. During this 7 day period called the lottery period, some asset management companies will list the home in MLS and others will not.
Another program HUD uses is the Good Neighbor Next Door Program(GNND). They sell designated houses to firefighters, police officers, teachers, and EMT workers. There are many special requirements that must be met to purchase a home in this program, one of them is you have to occupy the home for three years. Since the property is not eligible for all buyers, some asset management companies list them in MLS and some do not. If you see a property in Hudhomestore, but it is not in MLS, check to see who the eligible bidders are.
How can you submit a bid?
A buyer must use a real estate agent registered with HUD to submit a bid on a HUD home. If you are shopping for an agent and you are interested in HUD homes, ask your agent if their company has a NAID number. If they don’t have a NAID number, then they can’t submit a bid for you. Any office can get a NAID, but it can take up to 6 weeks to get a NAID number from HUD. If your agent’s office has a NAID, they can register on Hudhomestore and submit a bid for you very easily. The bid is submitted online and no documents are uploaded with the bid. HUD does require the social security, tax id or EIN number for the purchaser to submit the bid.
What happens after a bid is submitted?
HUD will only respond to your agent through email if your bid is accepted. If your bid is not accepted, HUD will not notify your agent, but your agent can look up the bid status. Your agent has to log in to HUDHOMESTORE.COM and go to bidder functions. They can search for bids they submitted, and HUD will list the bid status. It may say reviewing bids, accepted, canceled or other bid accepted. If your bid was not accepted and no other bids were accepted you can bid again as many times as you like. In some cases, HUD may counter your offer, but their counter is only a notification informing you of what net price HUD will accept. If you enter a bid that nets HUD the counter price or more, they will accept it as long as no one else submits a higher bid.
How low of a bid will HUD accept?
A buyer can submit any bid amount they want on a HUD home, but HUD has certain guidelines they will accept. Those guidelines change in different areas of the country and for different properties. The asset management companies are given guidelines from HUD on what bid amount they can accept. Usually, they are allowed to accept a net amount of around 10 to 12 percent less than asking price (in my area). The net amount is what HUD will receive after commissions and closing costs are paid.
HUD always pays the listing broker a 3% commission and the selling broker can get up to a 3% commission. If HUD is paying a 6% commission total, then that net amount they will accept has dropped to 4 to 6%t less than the list price. If the buyer wants closing costs, then that amount drops even further. If a property becomes an aged asset, meaning it has been on the market for more than 60 days, HUD may accept lower bids. In different parts of the country, HUD may also accept 20% less than asking price at the beginning of a listing period.
Here is a breakdown of what HUD may typically accept:
Asking Price: $100,000
Commissions: $6,000
Buyer Closing Costs: $3,000
Net to HUD: $91,000 or 91% of the list price
In the scenario above HUD would most likely accept a bid slightly lower than the list price of $100,000 like $98,000. If the buyer did not need closing costs paid, the bid could be lowered by $3,000 and HUD would still accept it because the net money going to them is still the same.
There are also occasions when a low bid that does not meet HUD guidelines is accepted. This usually happens on aged assets that have been on the market over 90 days. The asset management company can ask for special approval from HUD on these low bids. When this happens your agent may receive a counter from HUD in the morning and then an acceptance later in the day. This is because the asset management company could not accept the bid right away, but they sent it to HUD and it was approved later in the day.
Does HUD prefer cash offers?
Many buyers assume a cash offer will get accepted over a financed offer since cash offers have a better chance of closing. However, HUD does not care. They treat all offers the same whether they are cash, FHA, conventional, USDA, VA or even a 203k FHA rehab loan. HUD will pick the highest net offer to them, that is all they care about.
How soon should investors submit a bid to HUD?
The key to an investor getting a HUD home is speed. There are many investors waiting for HUD homes to make it to the investor bid period, and most good deals will get bid on the first day an investor can bid. On uninsured homes, there is a trick investors can use to gain an advantage over other investors. HUD opens bids on the next business day after the 5-day owner occupant bid period is over. HUD does not open bids first thing in the morning, they usually open them mid-morning or later depending on how busy they are. At the beginning of the 6th day, an uninsured HUD home will be available for investors to bid on, even though HUD may be accepting an owner occupant bid later in the day.
Investors should always try to get their bid into the system on that 6th day because HUD homes tend to fall out of contract more than other properties. If an owner-occupant cancels their contract, HUD will move on to any backup offers in their system that are an acceptable price before they put the home back on the market. If the house comes back on the market, an investor who bid on the 6th day could have their bid accepted, before any other investors get a chance to bid on the home.
Should you mark hold as a backup offer?
YES! HUD asks all bidders if they can hold their offer in a backup position. This means if an accepted offer cancels, they will automatically accept the next highest bid as long as it is an acceptable amount. It does not hurt to mark this box as you are under no obligation to continue with the contract if HUD accepts your bid. If HUD lowers the price on a property, they will review bids they have already received to see if they are now an acceptable amount after the price change. Your bid could be accepted before anyone else gets a chance to submit a new bid after the price change.
How to send in a contract after your bid is accepted
If HUD accepts your bid, they will notify your agent by email and give your agent instructions on how to send the paperwork to HUD. Your agent will have 48 hours to send the original documents to HUD (HUD may be allowing electronic signatures in some areas now). That 48 hours is extended for weekends and holidays. HUD has its own sales contract, addendum, and disclosures. They will require a pre-qualification letter or proof of funds letter if you are paying cash, and your earnest money must be sent with the package.
HUD requires certified funds for your earnest money. Your agent should be able to help you out with the package and explain all the details. There are a couple of very important documents to pay attention to that I will go over in the next sections. If your package is going to be late, make sure your agent contacts HUD and tells them it will be late and HUD may give you a little extra time. If your package requires corrections, HUD will email your agent and usually, corrections are due within 24 hours.
Buyer Select title company update
HUD has switched to a buyer agent select system where buyers now choose the title company. Buyers choose the title company for the entire transaction and can choose any title company they want. HUD will get the title company registered with HUD, once a bid is accepted and a title company is chosen. The asset management companies are handling things differently with some having the listing agent hold the earnest money and some requiring the buyer to send in the earnest money to HUD. Make sure you read the instructions thoroughly for what HUD requires.
How to complete an inspection on a HUD home
HUD has a different inspection policy than most REO sellers. When HUD has a property listed, they do not turn on any of the utilities. When HUD signs your purchase contract, they will email your agent a signed copy with the appraisal and a utility turn-on request form. You have 15 days from the time HUD signs the contract to do your inspection, and they allow you a three-day window to turn on the utilities. It is usually best to make your three-day inspection window as late into the 15 day inspection period as possible. The reason is you have to send in the form to HUD’s property preservation company, wait for them to approve it and then get utilities on in your name. It can easily take over a week to get the form back and get utilities on so make sure your agent turns in the request form as soon as possible.
HUD does not pay for the utilities or any turn on fees and they do not de-winterize the property. In fact, if you live in an area that requires winterization, you will have to send in $150 with your turn on request form if you want to turn on the water during the winter season. Most areas require the winterizations from 10/1 to 4/30. This fee is for the property preservation company to re-winterize the property after you complete your inspections. If HUD found the property’s plumbing system did not hold pressure during an air test, they will not allow you to turn on the water.
If you find issues during your inspection, you have two choices; cancel the contract or proceed with your contract knowing HUD won’t repair anything. They are very clear HUD homes are sold in as-is condition, and they will not make any repairs, even if the lender requires it. They are also very clear that they will not return your earnest money if you find inspection issues that cause you to cancel your contract. As I said earlier, HUD does an inspection before listing each property, and the basic results are listed on HUDHOMESTORE.COM. To find the inspection, look under addendum on HUDHOMESTORE and you will see a document called PCR. This will list the general condition of the plumbing, electric, HVAC and roof. Do not depend on these inspections to be perfect! Many times the HUD inspectors are only able to do a visual check since the utilities are not on.
How to do an appraisal
HUD does an appraisal on every home before they list it. HUD used to list every home at the appraised value, but that changed recently. Owner-occupants used to be able to use this appraisal if they are going FHA, but now all buyers must get a new appraisal. If your appraiser requires the utilities to be on for the appraisal, you have to follow the same procedure to turn on utilities as you did for the inspection. The best practice is to schedule the appraisal at the same time as the inspection if possible. The biggest issue I see with appraisals is the plumbing. HUD’s inspector will do a pressure check on the plumbing system before the home is listed. If the pressure test fails, it means there is a leak somewhere in the system.
That also means HUD will not let you turn on the water for your inspection or appraisal. If the system fails the pressure test and your appraiser requires the water to be on, you are out of luck. HUD won’t repair the lines and no repairs can be made before closing. Please pay attention to the HUD inspection before bidding and talk to your lender about the appraisal process. I have seen many deals fail because the water could not be turned on for appraisals on HUD homes. If you have already had your bid accepted and you have run into this issue, there are a few solutions. Many times a lender can escrow for plumbing repairs or a portfolio lender may be able to do the loan without utilities being on.
The other issue that may come up is an appraisal comes in low on a HUD home. This is rare, as usually HUD homes are priced low enough that an appraisal value is not an issue. If the appraisal does come in low or the appraisal requires repairs, HUD does not make repairs or price adjustments. Again the only choice will be to cancel or continue with the original bid price and terms.
Closing
Different asset management companies give different time frames for closing. Some allow cash buyers 30 days to close and financed buyers 45 days to close. Other companies allow 45 days for cash and financed buyers. If you must have an extension due to your lender or other fault of the buyer, then HUD will charge you for an extension. Typically the fee is $375 for a 15 day extension day but can be lower for lower-priced properties. The exact fee schedule is listed on one of the HUD forms you will sign. HUD will grant two extensions, but if a third is needed HUD will need proof that closing is eminent or they may not approve the extension.
Another difference with HUD is they do not pay for the buyer’s title insurance. Make sure you factor that into your figures when bidding on a HUD home. HUD does not require title insurance, but I highly recommend you get it. HUD does the best they can, but they are dealing with other lender’s homes that were foreclosed on and had FHA financing. Sometimes a title issue will slip through the cracks, and if you don’t have title insurance it can be a nightmare to get it cleared up. I sold a HUD home a few years ago that was owned by a large bank. 6 months after the sale, we learned the bank did not have clear title. The title company was able to clear it up, but if the buyers did not buy the insurance it would have been on them to figure out how to get a clear title.
Can investors get their earnest money back?
HUD is very clear that they treat investors differently than owner-occupant buyers. They feel investors are more experienced in real estate and should do their due diligence before making an offer. HUD makes investors sign a document saying their earnest money will not be refunded for inspection issues.
HUD may return half of an investor’s earnest money if their loan is denied, but remember it is very difficult for an investor to get their earnest money back from HUD if they cancel the contract. The earnest money amounts are $500 for contracts under $50,000 and $1,000 for contracts over $50,000.
Can owner-occupied buyers get their earnest money back?
HUD has very strict policies on earnest money returns and forfeitures. Investors have a very difficult time getting their earnest money back, but it is a little easier for owner-occupied buyers. HUD lists many reasons why they will return owner-occupants earnest money, the most common being loan denial. When you sign your contract, there will be a form called earnest money forfeiture policy. Make sure you read this carefully and understand exactly under what conditions HUD will return earnest money to buyers.
If an owner-occupant wants to get their earnest money back due to an inspection issue, make sure the inspeciton issue was not already listed on the HUD PCR (property condition report). If HUD already disclosed a problem with the house, HUD will not return the earnest money because of that problem.
How does HUD define owner-occupied?
The only way a buyer can be considered an owner-occupant is if the person living in the home will be on the deed when HUD sells the home. That occupant has to live in the home for at least a year and cannot buy any more HUD homes as an owner occupant in that first year. They must live in the home more than 50% of the time. You cannot simply leave the home vacant or leave a unit vacant. You must live there.
What happens to investors who commit fraud?
HUD makes owner-occupants sign a document confirming they are an owner occupant and if they are found to be an investor, HUD can fine them $250,000 with prison time. It is a federal crime to misrepresent yourself as an owner occupant when your true intention is as an investor. Not only can the buyer be fined and sent to prison, but the buyer’s agent and their entire office can also lose their ability to sell HUD homes. If you think you won’t get caught, remember there are many investors who would love to bid on HUD homes but can’t because of owner occupant rules, and they have no problem turning in other investors they see breaking the rules. Listing agents are also encouraged to keep an eye out for investors posing as owner-occupants.
Can repairs be made prior to closing on HUD homes?
HUD is very clear that they will not make any repairs prior to closing and the buyer is not allowed to alter the home in any way before closing. Some buyers may think it is not a big deal to fix a small plumbing leak or do some painting before closing. It is a very big deal! HUD homes are federal property and it is a felony to make any alterations before you own the home. If HUD finds out any repairs were made, they usually cancel the contract on the spot, take the buyer’s earnest money, investigate the buyer’s agent to see if they knew about it and then consider charges depending on the severity. Do not make any repairs, change the locks, remove signs or anything from the home before closing!
Owner-occupants have a distinct advantage when bidding on HUD homes. HUD allows owner-occupants to bid on HUD homes before investors can bid on HUD homes. On FHA-insured HUD homes, there is a 15-day owner occupant only bid period. Without going into the detail that I do in my other articles, FHA-insured HUD homes can get an FHA loan if the property needs less than $5,000 in repairs. On FHA-uninsured HUD homes, there is a 5-day owner occupant bid period. FHA-uninsured HUD homes have more than $5,000 in repairs needed and cannot go FHA unless you use an FHA 203K loan.
Under what circumstances can an owner-occupant sell a HUD home prior to living in it a year?
HUD allows owner-occupants to move out of a HUD home prior to living in the home for a year if they meet certain guidelines. It is always best to call HUD if you have to move out of a HUD home early as an owner occupant. If an owner-occupant has a change in location for a job, a death in the family, divorce, loss of a job or other extenuating circumstances, HUD may ease the owner-occupancy requirement.
How does the $1 HUD home and $100 down payment program work?
HUD will sell some of their homes for $1. Yes, that is not a typo, but do not expect to get a HUD home for that price. HUD only sells certain homes for $1 and they only sell them to non-profits or government agencies after the home has been for sale for an extended period of time. I never saw a home sell for $1 in my market the entire time I was listing HUD homes.
HUD also has a $100 down payment program that they occasionally offer. It is not available in every state and it is very rare that a buyer only needs $100 to buy the home. There are almost always other costs.
Conclusion
HUD homes can be complicated, but if you have a knowledgeable agent and lender they can be an amazing opportunity. If you happen to be eligible for the good neighbor next door program you may be able to buy a HUD home for 50% off! Just be careful pretending to be an owner-occupant when you are not, and make sure you understand the inspeciton and earnest money riles with HUD homes!
In my course The Complete Blueprint, I go even more in-depth on how to buy HUD homes. The Complete Blueprint is my most extensive course it covers every single aspect of my real estate business and how to replicate it yourself, including a 300-page guide, videos, call to actions, live coaching directly from me, an much, much more.