Home » Personal Finance » FHA Foreclosures Best Source for Novice Real Estate Investors

FHA foreclosures are one of the best places for novice real estate investors to look to pick up prime properties at a discount. The Federal Housing Administration makes loans to help many people buy or renovate their properties. Often, they are a lender of last resort, making loans that traditional banks would not consider. As such, they have a high rate of defaults. The result is that one of the best investment opportunities around are FHA foreclosures.

FHA loans are not made by the government. They are made by banks, but the U.S. federal government guarantees the loans. That means that if the borrower defaults, the government is on the hook for the mortgage so that the bank doesn’t have to worry about losing money. Essentially, this means that when the home goes into foreclosure, the government owns the home.

The FHA relies extensively on an auction system to get rid of excess properties. People who are aware of FHA foreclosure auctions can often pick up good deals at the events. Many people who have been involved in home flipping for years have used FHA auctions to generate many of their properties. They buy the properties, fix them up, and sell them for a great deal more than they paid.

FHA foreclosure programs are an excellent opportunity to build instant equity in a property. Investors also qualify for very low down payment options which can make getting started in real estate investment possible for people without a large wad of cash upfront.

Your HUD or FHA foreclosure investment property can be purchased with a FHA foreclosure loan or a federal administration mortgage. When a FHA foreclosure is purchased, the Federal Government insures the bank that the FHA home loan will be repaid, even if the government has to do it.

The government protects itself by charging a Mortgage Insurance Premium of about 2.25 percent of the mortgage.

Because the FHA is a government agency, it is more transparent than banks. Also, the FHA has every reason to get as many people as possible to a FHA foreclosure auction because the competition will drive up bids. Still, many people think finding FHA foreclosure leads is difficult.

Many FHA foreclosure listings are available on the HUD (Housing and Urban Development) website 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, these HUD homes are generally limited to owner occupants rather than investments. Certain public service employees such as teachers and firefighters qualify for a discount on HUD homes.

Some benefits of buying a FHA foreclosure include the fact that no appraisal is required, you can have instant equity in the property, the credit requirements are flexible, there is a low down payment, and HUD pays the closing costs.

If you are looking for an investment, consider a FHA foreclosure property.

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