FHA Foreclosures: Novice Real Estate Investors Best Bet

Many novice real estate investors find that FHA foreclosures are the best way to successfully invest in foreclosed properties. The Federal Housing Administration makes loans to help many people buy or renovate their properties.  The FHA has been known to make loans that traditional banks would not consider and as a result,  they have a high rate of defaults.  This makes FHA foreclosures some of the best investment opportunities in real estate, as well as a great way to own an affordable home.

FHA loans are U.S.federal government guaranteed to the lending bank.  So if the borrower defaults, the government is on the hook for the mortgage instead of the lender.   Essentially, this means that when the home goes into foreclosure, the government owns the home. 

The FHA relies primarily on an auction system to get rid of excess properties.  People in the know often pick up good deals at FHA foreclosure auctions.  Many old pros involved in home flipping use FHA auctions to generate many of their properties.  They buy the properties, fix them up, and sell them at a large premium.

It is possible to build instant equity in a property purchased at a FHA foreclosure Auction. Investors can also qualify for low down payment options, which makes getting started in real estate investment possible even for those who don’t have a large cash reserve to invest.

Properties purchased through a HUD or FHA foreclosure are eligible for FHA foreclosure federal administration mortgage financing. When a FHA foreclosure is purchased, the Federal Government again insures the bank that the FHA home loan will be repaid, even if the government has to do it. making it more attractive to lenders.

The higher default rate is partially offset by a 2.25 Mortgage Insurance Premium that is added onto the monthly mortgage payment.

The FHA is a government agency, making it more transparent than banks.  The FHA has a vested interest sell all their properties at a FHA foreclosure auction because the biding that takes place increases the sale price.  Despite all these reasons to invest in FHA foreclosures, many people still believe that finding FHA foreclosure leads is difficult. 

Many FHA foreclosure listings are available on the HUD (Housing and Urban Development) web site at http://www.hud.gov.  When you buy a FHA foreclosure through HUD, you will generally need to use a HUD approved real estate agent.  Also, HUD homes purchased through auction have the requirement of owner occupied rather than as an investment property.  If you are a public servant such as a teacher and firefighter you may qualify for a discount on HUD homes.

Because no appraisal is required, you may actually gain instant equity in the property.  Also the credit requirements are flexible, with a low down payment, and HUD pays the closing costs.

If you are looking for an investment, consider FHA foreclosure properties it is a relatively easy way to get a first home for yourself, or upgrade your lifestyle, without the up front cost or risk of many hard money financing schemes required to purchase investment property, or even of a traditional loan.