Short Easy Episode Alert!! There are two crucial elements to good marketing – a target audience and a message to deliver. In this episode we learn about a super “sticky” message that real estate professionals can first understand and then market. HUD Homes. These were the big thing in all conversations among agents, clients and lenders back in the last recession but as the market got stronger and stronger they fell out of vogue. However as the market has gotten more competitive, our guest Jeremy Drobeck found that HUD Homes were the perfect option for many of his clients who were losing out. In this episode Jeremy answers all things HUD Homes and explains how your client could get keys in their hand for as little as $100 down, and in some cases even wrap some repairs into their loan. Some questions that he answers include:
If you have a client moving to Kalamazoo, MI or the surrounding area, Jeremy Drobeck is always looking for new clients and is a great referral partner. You can find him online at 1stclassmortgageservice.com
The Neighborhood Realtor is proudly sponsored by Treadstone Funding and Neighborhood Loans. For more tangible tips in real estate marketing, check out Matt's book, The Tangible Action Guide for Real Estate Marketing available on Amazon.
Matt M. | Welcome to the Neighborhood Realtor podcast. With me, your host, Matt Muscat. This is a podcast for real estate industry professionals who are doers. Each episode will feature an interview with a top producer or someone who is doing things differently in an exciting way. For those who already know me or have read my books, their blogs, my brand of marketing is tangible and repeatable.
Matt M. | Because smart salespeople don't need to reinvent the wheel. My promise to you is that in each episode you'll leave with one tangible idea that you can take to the bank.
Matt M. | Everybody thinks for tuning in your Treadstone Education is one of our absolute top priorities and one area in the real estate and mortgage industry that there's just not a lot of great information out there about these fun homes. You know, ten years ago, there were hot homes everywhere and no one really knew what they were. No one really knew how to work with them.
Matt M. | So I wanted to have a conversation today with Jeremy Drobac, the top loan officers in the state of Michigan, top Mr. Loan Officer in West Michigan. He has helped countless clients with HUD homes over the past 20 years. So I wanted to stone Cherry say and learn a little bit more about it. Welcome. Welcome, Gary.
Jeremy D. | Thanks. Thanks, Matt. Thanks. This is a topic near and dear to my heart. I love dealing with HUD homes and yeah, I'm super excited to be doing this interview with you.
Matt M. | Well, let's just start with the very basics. The Elephant Room. What is a HUD home?
Jeremy D. | Oh, yeah. So, yeah, I mean, that's a great question. So what a HUD home is, is is an FHA foreclosure. And so somebody basically took out an FHA mortgage, which is a government backed mortgage, and was subsequently foreclosed on. They lost the home to foreclosure. And when those properties get foreclosed on, it's a little bit different process. And basically it ends up back with HUD and HUD resells the house.
Jeremy D. | So all of the if it's an FHA foreclosure, it ends up being a hi home HUD.
Matt M. | So, in essence, like this is a home that the government now owns that is trying to sell quickly so that they don't have to deal with the loans to deal with it anymore.
Jeremy D. | Essentially. Yeah, they got to get the things off their books and, and yeah, so they have a process for selling them and and yet that's what they're exactly what they're looking to do.
Matt M. | So you know common misconception so these, these are foreclosed properties and I know foreclosed properties get a pretty bad rap right, because there's some negative connotation side to them. So are these properties like in are they always in terrible condition? Could they be okay? Like, what have you seen with the HUD homes that your clients have been lucky enough to purchase?
Jeremy D. | Sure. It's I mean, honestly, it's hit or miss. So like, like any foreclosure, it's hit or miss. So some of them are are in great shape. The people when they got foreclosed on left them in great shape. And then, you know, the bank basically swooped in and winterize the house and stuff right away. There's other ones that are complete disaster.
Jeremy D. | I mean, just train wrecks where the you know, the the house didn't get winterized. The basement flooded. I've seen it with three feet of water in the basement, you know, And so you never know what you're going to get until you get into the house. But there's nice ones out there and there's ones that need a lot of work.
Matt M. | So with that being said, would you say that the primary draw for these is that customers can get these for a deal?
Jeremy D. | Yeah. So in a lot of cases, yes, but certainly not always. I mean, it just depends where the market's at in this situation with the property. But it's absolutely an avenue where people can get deals on them. I saw better deals in the past than maybe I do now, but that's because the market's hot right now and there's just a lack of inventory.
Jeremy D. | So so there's more. You know, when one of these comes on the market, there's more buyers going after them. But absolutely, there's a lot of opportunity there for people willing to take on a project like that.
Matt M. | Okay. Well, if I if I'm a consumer or if I'm a realtor and I want to find a list of hot homes, where would I how would I start that process? Yeah.
Jeremy D. | So that's real simple. They're all in one spot. So I Homestore dot com is the spot to find them. So any HUD home that gets listed you jump on HUD Homestore dot com you can search by area state and it'll pull up all the properties in the area that are HUD homes that are currently listed for sale.
Matt M. | Now do those also end up on the major like the MLS today and up on Zillow, things of that nature.
Jeremy D. | Absolutely. So if somebody has got a realtor they're working with where they're looking at house, you know, getting house to send to them and stuff, those certainly could pop on the list because they also get listed by a realtor for sale.
Matt M. | Okay. So number one, call your realtor and they can help you out.
Jeremy D. | Yeah, exactly. Call your realtor. That's always my answer. When you're looking to buy a house, call your realtor.
Matt M. | So let's say I'm Joe Buyer. I want I find one of these. I know. How do I finance? Like, obviously, this is a property that is is with HUD because someone foreclosed on an FHA loan. Can you get another FHA loan on this or is there different finance? Are there different financing options?
Jeremy D. | Yeah. So that's a great question. That's what I honestly love about Beside Homes. A lot of lenders kind of run from them. I run to them. I love them and is because there's some unique financing options so people can do like they can do a normal, conventional loan, they can do an RV loan, a VA loan. You know, those programs are there and available.
Jeremy D. | But the really cool thing is what FHA offers on them. So remember when we said that these were FHA foreclosures, Right? So because they're FHA foreclosures, FHA also is is is a loan program. Right. And so they want to incentivize people to purchase HUD homes so they have special financing options available on the HUD homes. And and basically, though a normal FHA loan would require three and a half percent down, and in the case of a HUD home, FHA offers those for $100 down, $100 down.
Matt M. | So basically, like I don't want to say zero down, but I mean, really, someone could purchase a HUD home for 100 bucks down.
Jeremy D. | $100.00
Matt M. | Any major other limitations to that that people should know about Now?
Jeremy D. | It sounds like it sounds like, you know, it sounds too good to be true. It sounds like I'm blowing smoke when I say that, but I'm not. I mean, that's it. That's $100 down. So now, of course, there's closing costs involved, just like like any other situation. But HUD will pay pretty much no questions asked. Huddle do 3% or somebody closing costs.
Jeremy D. | So that can get written into the offer to get a big contribution from HUD, the seller HUD, towards towards closing costs.
Matt M. | Now, does that mean because if to qualify for the $100 down, they would have to be a first time homebuyer? Or is that not correct?
Jeremy D. | No, it's not. It's incorrect. They do not have to be a first time homebuyer to qualify that is honored hours down. You can be a move up buyer. You know, absolutely.
Matt M. | What about second home?
Jeremy D. | Second home? No. So that when I'm talking when I'm talking $100 down, I'm talking primary residence because it's an FHA loan. So it's it's still an FHA loan. So it's still FHA will only work with people on their primary residence. And so we're still bound by all the other FHA guidelines.
Matt M. | So normal FHA loan, but lower down in requirement.
Jeremy D. | Exactly.
Matt M. | Awesome. But that's an amazing thing. I did not know that having worked in the industry for ten years, That's pretty cool. It's a.
Jeremy D. | Beautiful thing.
Matt M. | So what if someone needs repairs? Right? So you mentioned that some of these houses are great, they're in perfect shape, but some of them might need some work and possibly need some work to qualify for FHA. I'm not sure if that happens often too. So if someone you know wants to buy this home for $100 down, but they know there's going to be a bunch of work, they're going to want to do it.
Matt M. | I know a lot of people might not have 30 grand to redo a bathroom. How what are the options there?
Jeremy D. | Right, right, right. So that honestly is why I run. I say I run two of these and I get so excited about them is because of the options when there is repairs. So some of these houses are going to be in great shape, ready to move in, you know, maybe just some minor updates or whatever. And then you're going to have the total other end of the spectrum.
Jeremy D. | But it's FHA, right? So FHA has two loan programs. They have the 203b, which is just a normal FHA loan, and then they have the 203k and the 203k is a renovation loan. So somebody essentially they they get a bid from a contractor to fix whatever is wrong with the house and refinance it into the loan. And all that work is done after closing.
Jeremy D. | So and that's mild. While that can be something as simple as a couple thousand dollars worth of work or, you know, I've done with $100,000 worth of work, just depending on what the house needs. And the beautiful thing about it, it's $100 down on a HUD home because of that special incentive that they have. So somebody can come in, buy finance, get a bid from a contractor, financing all the repairs they want to finance in, and do it with $100 now.
Matt M. | Wow. So they don't even have to put any extra money in ahead of time for those repairs.
Jeremy D. | No, we can close the loan when it doesn't matter if the house has mold, if it has water in the basement, you know, a tarp on the roof or maybe just some shag carpet. The buyer wants to swap out. They can do it on the FHA two or three K renovation loan with $100 down.
Matt M. | One of the one of the secret weapons there from a marketing standpoint is that in this market, things are competitive. So a lot of people are a lot of savvy buyers are staying away from these these houses that they perceive to be full of problems. It's going to be a project that will work. So someone that's been struggling to get an offer accepted could find one of these homes, put $100 down, get it renovated up to where they want it to be, and move into a perfect house.
Matt M. | I mean, this sounds like an awesome opportunity for those who've lost out on some other offers. A competitive market.
Jeremy D. | It's an amazing opportunity.
Matt M. | So if someone want if someone wants oh, the other big question I've heard, what about land based? You always hear with like older homes especially and with government loans, a lead based paint can be an issue. What's the story there?
Jeremy D. | So so one of the caveats with a HUD home is HUD, the seller. If somebody is buying one with FHA financing, Heidi is going to test the house for that and which is very rare. I mean, generally speaking, in the industry, there is a lead based paint disclosure that gets signed and papers passed around to make everybody happy on that.
Jeremy D. | But generally speaking, nobody tests for lead in and, you know, homebuyers just don't run those tests. And but in the situation of the HUD home, if they're doing an FHA loan, HUD is going to send somebody out there to test the house for lead, which isn't necessarily a bad thing. They're making sure the house is safe. So if they have little kids and stuff, they don't get lead poisoning.
Jeremy D. | So but what happens often times on these older homes is that they'll part positive for lead or pop positive. When how does this test and I'll get I'll get sent a I mean it's literally like a 5060 page report where they go through the house and they test the whole thing for lead. They shoot, you know, a laser, whatever, at at the different spot trims, trim and the walls and everything.
Jeremy D. | And we'll come back and tell us the areas that have lead. And a lot of times like if at the lender doesn't know how to navigate that process, the deal just blow up. But it's really not a problem. So what HUD then does after they get the lab report is they get a bid, have it, have it remediated.
Jeremy D. | If the bid to remediate the paint is less than $4,000, HUD just takes care of it. They just take care of it. No big deal. You know, it might take another week or two to get close, but they take care of the problem. If it's more than $4,000, then what we do is we switch it over to the 203k renovation loan.
Jeremy D. | We have the contractor bid out the painting that needs to happen. And really when you remove remediating lead, typically all they'll do is just paint over it. So they clean up the paint chips and stuff and then paint over. It is good to go. And so we'll get a bid from a contractor to paint the place and HUD will pay $4,000 of that bid.
Jeremy D. | So. So somebody could. I've done deals with buyers where it's a $5,000 cost. HUD pays for thousand of it, and this buyer gets this freshly painted house for a grant that's financed into the loan. It's great. So even the lead stuff that you read out there with the HUD homes and stuff, it's really nothing to be concerned about.
Jeremy D. | It all gets taken care of as part of the process.
Matt M. | And it might even mean you get a fresh coat of paint on your new house.
Jeremy D. | Right? Exactly. Yeah.
Matt M. | It could actually work to your favor.
Matt M. | And now a message from our sponsors. The neighborhood realtor is made possible by the generous support of Treadstone funding in neighborhood alongs.
Matt M. | With locations all.
Matt M. | Over the US neighborhood. Loans believes in doing mortgages better, faster, smarter, and creating personal relationships with their clients. And realtors.
Matt M. | We talked to a primary resident, so just to be super clear, can I buy a home as an investor? Is there any way to do that?
Jeremy D. | Yeah. So let's just real quick run through the bid process and and how that plays in with investors. So when somebody wants to buy a HUD home, what they're going to do is obviously, number one, they got to get pre-approved and then the realtor is going to show them the house. HUD works on a on an online system.
Jeremy D. | So the realtor goes online and they put the bid in online for the customer. And when HUD first puts that house on the market, it's on them. They now have a ten day window. So the house goes live and HUD literally collects bids for ten days. You could offer $100,000 more than what they're asking, and it doesn't matter.
Jeremy D. | They're still going to collect bids for ten days. They won't respond to any offers for the ten days after that ten day period's up, HUD picks the highest bid, so they don't really care what type of financing it is. They don't care if you're asking for closing costs. Really, all they care about, they're there to recoup as much money for taxpayers as possible.
Jeremy D. | And it's all about the bottom line. So whoever's got the most money netted to set the seller, HUD is going to win that bet sold. So now, if the bid doesn't if the house doesn't sell in those ten days, then the home opens up for investors. Got to know those investors and that are out there looking to snag a deal.
Jeremy D. | This house is at a at a good price. They've got to wait till the ten days is up. And in in West Michigan, we're at where we're at. Most of these houses are selling within that ten day window on the east side of the state. I see more and more as as the market kind of gets a little easier for people and softens a little bit.
Jeremy D. | They're sitting out there longer and there's definitely some on the east side of the state that are available for investors. So but the investors got to clear that ten day window and it's real clear on HUD home store dot com if they're opened up to an investor yet or not.
Matt M. | So Jeremy I know you've been working with these types of properties for a huge portion of your career. I know a lot of people listening to this won't be just in Michigan National Are you seeing the numbers of hot homes rise, declines stay the same like what's happening out there?
Jeremy D. | So when we had that foreclosure moratorium during COVID, the HUD home listings out there kind of dried up because they just weren't able to take people through the foreclosure process that, you know, has since been lifted, that they're moving through the process. There's more and more all the time coming on. It's still a little light on inventory, but it's because that foreclosure process is so long.
Jeremy D. | So I think as time continues on here this year and going forward, we're going to see more and more of those hit in the market. Somebody can sign up to get new listings sent to them on the HUD home store dot com. So people interested in looking at these, they should just jump on there and set an account up and they'll be auto emailed new listings.
Matt M. | Okay. So I know we have a lot of agents that listen in my I'm curious for them other than watching this interview and listening to this how what things should agents specifically make sure their clients are aware of before they show them at home or before they really talk about them with their clients? Yeah.
Jeremy D. | So it's interesting that you bring that up. Realtors are scared of these things. A lot of realtors are, and they shouldn't be. They just need a lender that they're working with that knows how to navigate the process. It's a it's a it's there's nothing wrong with these HUD homes. I got realtors that have just embraced it and they've done really well because they've embraced the process.
Jeremy D. | Well, what a realtor needs to do is, is make sure they've got that customer set up with a lender that can provide the $100 down that can do the renovations like and handle all that stuff. That's the key ingredient to making sure it's a smooth process. Otherwise they'll get tripped up when when the water heaters leaking or the power can't be turned on or the heat comes back with lead, like those are all totally solvable problems.
Jeremy D. | But the lenders got to help with that and got to got to really help guide them through the process. And so the key for realtors is hook up with a with a with a mortgage guy that knows what he's doing.
Matt M. | I love that. So I think I think I know you answered. I know the answer to this one, but I think our our audience blinks now. So we talk a little bit about renovation loans, specifically the FHA two, three, eight in use with HUD loans. Can you use FHA two or three K or renovation lending in general on any house that you're in, your loan on?
Matt M. | Or how how does that work? Who's eligible for that? And are there certain properties that that work or don't work?
Jeremy D. | Yeah. So I mean that 203k program, that renovation and we have a conventional renovation program and an investor renovation program, but the bottom line is, is renovation loans are out there that are real thing. They're available to you know for for any property really. And so the main thing with the HUD homes is it's $100 down. If somebody is buying a non HUD home and wants an FHA renovation loan, we're going to be looking for three and a half percent now.
Jeremy D. | So it's still not a lot, but they got to have a little more skin in the game.
Matt M. | Got it. That makes sense. Now, if I'm a buyer and I want to get pre-approved for a HUD home, is the process any different than getting pre-approved for a normal mortgage?
Jeremy D. | No, not really. They just they just need to call us or jump on line and Treadstone mortgage dot com or my my personal websites first class mortgage service dot com but they just need to jump on line and and apply and then you know we'll we'll take them through the normal process of pre-approval.
Matt M. | That's awesome and any of the big things with the homes that we should talk about before we before we get off.
Jeremy D. | I think that really covers it. I just want to encourage people, don't be scared of them. It's a great way to buy a house or a great property to buy. There's nothing to be scared of with them and yeah, if it yeah, it's a great program.
Matt M. | That's awesome. Well, anyone out there looking for more information on HUD homes, HUD properties, contact Jeremy Drobac. She's the local expert with Treadstone Mortgage in Kalamazoo, Michigan, and he's looking forward to helping you for any other marketing tips, things like that. Listen to more episodes of our podcast. The Neighborhood.
Jeremy D. | Realtor.
Matt M. | Huge. Thank you to our sponsors, Neighborhood Loans and Treadstone Mortgage. With offices around the U.S., their loan officers offer a realtor centric focus personal communication from real humans, plus on time closings that frankly are faster than most of the mortgage companies want to be connected to a great Ello message. Meet your host for more information and I will connect you with a loan officer in your neighborhood.
Matt M. | One more marketing tips. Check out my book on Amazon Tag The Tangible Action Guide for Real Estate Marketing. And finally, if you want to support the show and hear even better guests, leave review on the podcast platform to us, not me.