When first-time homebuyers finally close the deal on their first home, they are often so focused on the price of the home and the mortgage, that they forget about the other expenses involved with the closing process. Here we’ll take a look at some of the typical fees that often catch first-time homebuyers by surprise, and examine how much a homebuyer can expect to pay for each.

Let’s assume that our typical homebuyer is looking to buy a home for about $230,000, which is the average median sale price for 2011. This homebuyer is also putting a $10,000 down payment on the home, and will be financing the home with a 30-year, fixed-rate mortgage with a 5% interest rate.

Loan Origination Fees

A loan origination fee is a one-time flat fee that a borrower must pay when the mortgage loan is closed. This is a pretty big hit to the wallet for new buyers, as it can range from 0.5 percent to 2 percent of the loan’s principal amount. This fee pays the loan originator’s administrative costs, and it is only paid to the originator if the loan goes through. It is also considered to be the originator’s commission.

On our hypothetical $220,000 mortgage, the homeowner can expect to pay up to $4,400 for this charge, although it is likely to fall within the $3,500 range. This fee should be fully disclosed on the lender’s Good Faith Estimate, which must be provided to borrowers by law.

Title Services and Title Insurance

Homebuyers are generally subject to title insurance, which the buyer must pay to protect both himself and the lender. Basically, the complicated system of title and ownership transfer in the U.S. makes this insurance necessary to provide some assurance to buyers that the owner who is attempting to sell them the home actually holds the title to that property. If there is some dispute, the title insurance will pay to defend the owner and/or the bank in a legal contest, investigate issues surrounding title disputes and provide compensation when required. On a $220,000 mortgage, this charge will amount to about $700.

Initial Tax Payments

Another thing that many homebuyers don’t realize is that they are required to make a deposit to an escrow account when the loan closes. Local lending rules that determine how these must be funded vary, but in general these are advance payments for homeowners’ insurance premiums and property taxes. An escrow agent then uses this account to pay the local tax authority and insurance company. On a $220,000 loan, this initial deposit will amount to about $400.

Prepaid Interest

Prepaid interest is a daily interest charge that is paid to your lender in advance. If you close your loan before the end of a month, your lender will require that you pay interest on the number of days until the start of the first full month. Assuming this is calculated for 15 days, this would amount to about $450 on a $220,000 loan. For those who meet certain IRS requirements, mortgage interest may be deductible at tax time.

Homeowners’ Insurance

In the U.S., lenders require that homebuyers purchase homeowners’ insurance in order to protect the owner – and the bank – if the home were to be destroyed. This initial fee will be about $500 on a $220,000 loan, and the homeowner will continue to pay a monthly fee thereafter.

Appraisal, Inspection and Other Fees

There are a few other, smaller fees that homebuyers will have to bear as part of the closing process, although these can vary depending on the lender and the municipality in which the buyer lives. These include a home appraisal, flood certification, tax services, survey expenses and pest inspection. Although these are mandatory in most cases, buyers may be able to shop around for and negotiate with their service providers to help reduce these fees.

All told, the closing costs on a $220,000 mortgage will cost the homebuyer an estimated $6,500. Unfortunately, this is a major sticker shock for many new buyers. However, much like all the ups and downs in home-ownership, this expense will be much easier to handle for those who are prepared for it. Buyers who are buying a home for the first time must know that the final price for their home will be up to 2 percent more than the price they agreed to pay the seller. But, as any long-time homeowner can attest, closing fees are just the first of many expenses that come with owning a home.

This guest post was written by Go Banking Rates, a website that brings you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @GoBankingRates.

You’ve worked hard,  saved for a down payment, paid down credit card debt and made sure you’ve got stellar credit. Now you’re in the market for a house and you’re wondering what red flags you should be looking for.  The good news is that it’s much easier to spot housing red flags than you might think. That said, there are a few things you should always investigate before buying a home.

First things first, don’t be afraid to hire an inspector. Sure, it costs money. But, it can save you a bundle if it catches something you can get the seller to repair before the purchase.

When checking out a potential home, start by getting a sense of the neighborhood. See what condition everything seems to be in and what kind of stores and services are around. Be on the lookout for a large number of for sale signs. In markets past, a house for sale for a long time generally stirred red flags. However, in this current market, people just aren’t buying. One house being on the market does not necessarily signify a lemon. On the other hand, masses fleeing a neighborhood can signify a larger reason you may not want to move in. This could be anything from crime going up, jobs leaving, or something as benign as a cultural shift in the neighborhood. If the neighborhood is stocked full of large family homes, older folks might just be moving on now that their children have grown and they don’t need the extra space. Many homes for sale in the neighborhood can mean nothing, or it can mean everything. Just make sure you check into why so many people are looking to leave.

Next, take a few minutes to peer at the outside of the house. Is shrubbery overgrown? Do the gutters look like they haven’t been cleaned in ages? Many buyers can tell the difference between a house that has been maintained, and a lemon that’s been polished up for sale. If this gives you trouble but you’re still interested in the home, call an inspector. If the ground around the house slopes toward it, rather than away, be on the lookout for water damage and mold.

Once you’re inside, there are a number of things to look for. First things first: Smell. If the place smells overly bad, figure out what the source of the aroma is. Mold can be an expensive fix. It’s one thing this writer wouldn’t stand for. That might seem overly picky, but any seller would have to appease my allergies before they had a shot at a sale. If the house smells overly pleasant, that’s another alarm. It’s the home sale equivalent of bathing in perfume when you don’t have time to shower: it’s covering up something gross. An overly freshened aroma could be covering up mold or pet odor. So, if the room smells a little too much like lemon zest, check it out thoroughly.

Next, check all the major home appliances: furnace, stove, water heater, central air conditioner, etc. Find out how new they are, whether or not any have been recalled, and whether or not any will need replacing any time soon. If you’re going to have to spend thousands on a new furnace because the current owner is trying to unload the house before the current furnace goes, you can wind up with a hefty bill after the fact.

Find out when the house was built. This can give you an idea of what problems to expect. There’s nothing necessarily wrong with an old home, there are just things to be cautious about. Homes built in the early 1900s used lead pipes. Between the 1920s and 1970s, many homes used asbestos based products.  There are some things no one should settle for. If the house isn’t on a solid foundation, if it isn’t level, or if there’s serious structural damage, think twice. Correcting these sorts of problems is nearly always a massive undertaking.

Lastly, when you check out a potential home, don’t be afraid to take along a friend or family member, particularly one who works in home construction or repair. While there’s no substitute for a fully qualified inspector, a well-informed acquaintance can help you spot deal breakers, and can make sure you ask the right questions.

Many people are familiar with the concept of a foreclosure auction. In most people’s minds, such an auction works like so: A property that has been seized by a bank due to delinquent payments is offered up for sale and sold to the highest bidder. While that much can be part of the process in some cases, the whole series of events can be a little more complicated. Here’s a quick guide to how real estate auctions occur.

When a mortgage holder misses a payment, their lender flags the borrower’s account and watches for future missing or late payments. If the borrower continues to miss payments, the lender will eventually consider the account delinquent enough to begin foreclosure proceedings. Foreclosure proceedings processes vary from state to state. But by and large, most states’ foreclosure laws involve filing a notice of intent, and then creating public newspaper announcements that the property will be sold on a given date.

Most states allow bidding to begin before the actual sale day. Many states make these days available for first time homebuyers to put down bids on the property. If the mortgage lender receives a bid high enough to meet their requirements, it is typically accepted, and the property never even gets to the auction block. But, if no sufficiently high bid is received, the lender will go ahead with the auction as planned. Many states allow the seller to specify a minimum price, also known as a reserve. If this price is not met, the mortgage lender may keep possession of the property until a better offer comes along.

In several states, there is a waiting period before the high bidder at a courthouse auction can take possession of a property. In this time, liens and other tax obligations are settled. Some states even allow a foreclosed borrower to repurchase the home for a price equal to the high bid.

Homes sold at auction frequently sell for less than market price. This makes auctions a favorite destination for real investors and speculators. Although you may be able to grab a good piece of real estate at well below market value, buying an auction home does not come without disadvantages and risks. For one, the total bid price is due in cash at the time the bid is declared the winner. This means you won’t have time to secure a mortgage if you win the auction: you must have the amount available in liquid assets at the time of auction. For most people, this makes a courthouse auction financially inaccessible. Even at a steep discount from market price, few people have the cash on hand to lay down for a home.

Next, you may not be able to move in right away. Frequently, previous owners will still be living in the home, and it may take a significant amount of legal effort to evict them. Also, you may be forced to repair or refurbish the interior of the home. It’s sadly not uncommon for frustrated owners facing foreclosure to damage the home as it approaches auction day. You may even have heard stories about homeowners removing all of the copper pipes in a home. It may sound bizarre, but all that copper frequently has a high scrap value. Doing so isn’t legal, but it still happens, and can mean a very high price for repairs for a new buyer.

If you’re considering an auction purchase, see if access to the home is available. Sometimes it is, sometimes it isn’t. If you can see the home, that will give much more information to go on. Also, find out if the owner occupies the home. While it may be difficult to get a tenant to leave, they’re much less likely to damage the home out of frustration during the auction process. Always remember, auction homes are usually sold as is. You may have no legal recourse if the home you receive is in much worse condition that you expected. For this reason, auction homes are often not for the faint of heart.

Between February and August of this year, Coldwell Banker studied average home prices in nearly 300 markets where the firm operates. The firm tracked the average prices of four bedroom, two bathroom houses in markets across the United States. The resulting report shows huge differences across the US, with average prices for comparable homes ranging from under $70,000 in Detroit to nearly $2 million in California. Per the report, here are the most expensive places to buy a new home in the United States:

1. Newport Beach, California -  No surprise here. Newport Beach has long been considered among the wealthiest cities in United States, with 25% of its resident incomes exceeding $200,000. It’s not a shocker that an average two bedroom, four bathroom home goes for $1.83 million in Newport Beach.

2. Palo Alto, California -  Standard homes in the San Francisco Bay area home of Stanford University go for an average of $1.48 million.

3. Rye, New York – Average homes in this Westchester County city go for $1.33 million. Rye provides easy access to commuters who work in New York City or Stamford, and is home to Fortune 500 company Jarden.

4. San Francisco, California -  Average homes of the like studied by Coldwell Banker sell for $1.33 million in San Francisco. The city relies on tourism for most of its commerce, but is also home to two professional sports teams and a top 5 medical school, UC San Francisco.

5. La Jolla, California – Owning a home in this southern California resort community comes with a price tag of around $1.21 million. La Jolla is also home to UC San Diego, don’t let the name fool you. (Downtown San Diego is about 12 miles south of La Jolla.)

6. Greenwich, Connecticut -  Thanks to its proximity to New York and an easy 37-minute commute to Grand Central, this Fairfield County town is home to many a hedge fund company, and many a four bedroom home with a price tag of around $1.20 million.

7. Wellesley, Massachusetts – Home of Wellesley and Babson colleges, this Greater Boston town boasts the 70th best high school in the United States (according the US News and World Reports) and typical home prices of around $1.08 million.

8. Pasadena, California – This Los Angeles County city is famous for hosting the Rose Bowl every year. Among its many cultural and educational centers is the California Institute of Technology. Typical homes in Pasadena cost around $1.04 million.

9. Honolulu, Hawaii – The only city outside of the U.S. mainland to make the list, Hawaii’s populously densest city is also the state’s capital. Homes of the like considered by Coldwell Banker run for $1.03 million in Honolulu.

10. Santa Barbara, California – Our last city on the list can boast not just its status as a tourist and resort town, but also five institutes of higher education, including UC Santa Barbara. Homes in the city cost around $1.02 million.

What drives these prices up? Generally, it’s a population of wealthy folk willing, for whatever reason, to pay a premium to live in the area. For example, look no further than Greenwich and Rye for their easy commutes to the city. Of course, buying a home in one of these cities isn’t the same as buying a home in a cheaper city. Residency in a city comes with benefits and drawbacks, including amenities, entertainment, climate, safety, and the quality of local schools. All of these factors contribute to the market price of homes. Hence the reason a home in Palo Alto costs almost 27 times that of a comparable home in Detroit.

• Current US Mortgage Rates

You’ve been hard at work, soundly managing and saving your money. You have a good credit score, and you’ve amassed enough cash for a down payment on your first home. Or, perhaps you’re looking to sell your current flat and upgrade to some new digs. Either way, you might find yourself considering a new construction home, with good reason.  New construction homes are a sound plan for many buyers. Here’s a few tips to make sure you can’t go wrong along the way.

The Advantages

1. First and foremost, everything in a new home is new. Floors, ceilings, windows, roof, siding… the whole nine yards. One huge benefit of this that few people consider is warranties. Any appliances included in your home will probably come with several years worth of warranties. The furnace, water heater, central air system, and any kitchen appliances that come with the home are likely to be covered for several years under manufacturers’ warranties. Chances are that your first few years of home ownership will incur very few costs for repairs.

2. Another added benefit of new homes is efficiency. New appliances are made to use less energy than their predecessors. This translates into lower energy costs. In other words, you’ll probably spend less on electricity each month. Further, new construction homes are better insulated than older homes. This means smaller bills to heat and cool your home. Certain efficiency upgrades could even lower your tax bill so make sure to check with your tax adviser to see if you qualify.

3. If you purchase the home during the pre-construction phase, you’re likely to receive a great deal of flexibility. Most times you can customize appliances, paint colors, flooring, and other home features.

4. Builders can often offer you discounts off the purchase price, or be able throw in added amenities. Frequently, a home-builder will present you with mortgage options. But remember, a home-builder can never require you to use their preferred lender. You always get to choose your own. There’s no harm in hearing an offer from your builder’s preferred lender, but make sure you compare their rates to other lenders and always read the fine print.

The Disadvantages

1. Unfortunately, you can’t assume that a new construction home is in perfect condition. Even though the home is freshly constructed, you want to make sure to have the home inspected by a professional before the purchase. A qualified inspector will check to make sure that everything is installed properly and in good working order prior to the sale.

2. The location of new construction homes can often be a bit of a drawback. Developers frequently build a series of homes on open land. In other words, new suburban developments are typically a bit removed from city centers. Also, if the home is in an entirely new neighborhood, you won’t be able to get much of a feel for your neighbors before the purchase. Established neighborhoods offer buyers more of a chance to gauge the character of a particular area before buying in.

3. Lastly, remember that Mother Nature can get in the way of home building. There’s always a chance your home build will be delayed due to weather, which could mean a push back on your move in day.

To conclude, treat a new construction home with the same healthy skepticism you would any other home. Get it inspected to make sure everything is in proper shape. Make sure you think you’ll be happy in the neighborhood. And always shop around for the best loan available to you. Shopping around for mortgage interest rates now can mean a future lower interest rate and that translates into lower payments over the entire course of the loan.

As if the sub-prime mortgage crisis followed by a collapse of the housing market wasn’t enough. Behold the foreclosure crisis sparked by Jeffrey Stephan, head of Ally’s (formerly GMAC) foreclosure document processing team. Stephan admitted under oath to having signed off on documents that he had not reviewed for 10,000 foreclosure cases per month for the last five years. To make matters worse, all such documents had been notarized in Pennsylvania, even though they were being used in foreclosure cases in many different states. Since different states have different standards for notary approval, these documents should have been unacceptable in the vast majority of state courts. Even the notaries failed to do their jobs.

Following Mr. Stephan’s lead, other employees at Ally revealed that they had submitted faulty affidavits when foreclosing on an unknown number of homes. This process, coined “robo-signing” as employees rubber-stamped thousands of foreclosure documents without checking the information, has resulted in Ally suspending foreclosure evictions in 23 states. Following Ally’s transgressions, Bank of America and J.P. Morgan Chase also suspended evictions in the same states after realizing they too were guilty of employing “robo-signers.” Bank of America suspended foreclosures nationwide shortly thereafter, followed by PNC and mortgage servicer Litton Loan Servicing. This has of course raised the question, “Will there be a foreclosure moratorium nationwide?

The backlash has been severe. State attorney generals in six states are demanding foreclosure moratoriums, and the Ohio attorney general filed suit against GMAC calling it “the tip of the iceberg of industry wide abuse.” Class action lawsuits are being filed left and right in neighborhoods across the country. Even Congress has become involved invoking Attorney General Eric Holder to have the Justice Department investigate.   All in all there is the sense that families have been forced out of their homes without following due process. The Obama Administration is looking into the situation and there is speculation that the government will launch a formal investigation.

David Axelrod, Senior Advisor to President Obama, stated that the Administration is pressing lenders to review their foreclosures to determine which ones have flawed documentation.  Nevertheless, he stated that a nationwide foreclosure moratorium would be an overreaction because there are valid foreclosures that should go forward.

Despite the banks attempts to defend their actions, insisting that most people whom have faced foreclosure were legitimately behind on payments, the dominoes continue to fall. Title insurers Old Republic National and Stewart Title have made it nearly impossible for agents to underwrite policies on foreclosed properties owned by the implicated banks.

Although many had hoped for the housing market to bounce back, it is thought that this crisis will only delay its recovery particularly if a nationwide moratorium is ordered. Banks and lenders will have to review paperwork for hundreds of thousands of mortgages as well as revisit their foreclosure protocols and process. As a result, the market will likely continue to lock-up. According to Dorothy Buse, a Coldwell banker real estate agent in Orlando, Florida, out of the 200 foreclosures she had listed for sale, 40 are now in the foreclosure freeze; of the 40, 12 that were already under contract are now on hold.

As more faulty documentation is exposed, inventory will be taken off the market. Housing market experts believe that a lengthy foreclosure moratorium could help tip the economy back into recession and delay the housing recovery for years. In fact, in the past seven recessions, housing has been the catalyst to pull the economy out of recession.

We will have to wait and see.

The Home Affordable Modification Program, which aims to stabilize the housing market and help homeowners who are struggling to pay their mortgages, was introduced in February 2009 as part of Obama’s Financial Stability Plan. The Financial Stability Plan attempts to address the key problems at the heart of the current economic crisis and to get our economy back on track. According to the Making Homes Affordable website, over one million homeowners have received help under the program and it is on track to offer help to 3 to 4 million homeowners by 2012.

The program, itself, however, is considered by some to be confusing as there are many moving parts. There are several sub-programs that homeowners can choose from under this program, all of which aim to help the homeowner stay in their home or transition to more affordable housing such as the Home Affordable Foreclosure Alternatives Program.  Let’s take a look at how the loan modification process works within the Making Homes Affordable Program.

A home loan modification is similar to a mortgage refinance except that instead of looking for an entirely new loan, your existing loan is modified. In today’s economic environment, many homeowners are unable to make their mortgage loan payments because of financial hardship. It is not necessary to miss your mortgage payments to qualify for the Making Homes Affordable Program but it certainly doesn’t hurt. The only place where you can get a loan modification is with the lender that services your existing mortgage loan such as Bank of America or Wells Fargo. Each lender, however, has different loan modification programs and processes.

To be eligible, you must have experienced a documented hardship or change in financial circumstances, missed three mortgage payments (90 days delinquent) or more (although this is not always the case), own and occupy the property as a primary residence and not have filed for bankruptcy. If you pass this initial screening, most often, the lender will then require verification of income levels, tax returns, etc. so that the bank has enough documentation to evaluate the risk in modifying your mortgage. Once all the paperwork is in order, which can take up to several months, and if the lender wants to move forward, you will generally be asked to make trial payments for several months. The original time frame for trial payments is around three to six months; however, as lenders have been inundated with requests for loan modifications, the trial period has been extended. If ultimately approved for modification, the homeowner will begin making new monthly payments, most often at the same amount at which trial payments were being made.

The homeowner should be certain to understand how the loan modification can impact his/her credit and just how long the entire process takes. The impact to your credit will largely depend on how the lender reports it to the credit bureau; in the short term it could result in a drop in your credit rating, but avoiding a foreclosure will benefit you in the long-run. Most people that apply for this program are already experiencing some sort of financial difficulty which has caused them to miss mortgage payments, thereby impacting their credit.

Remember, the Obama Home Loan Modification Program is different from other programs such as the Federal Housing Finance Agency Loan Modification Program. Ensure you understand what program and subset of each program works for you. Most important, be patient as the entire process can take months.

Individuals, couples or families that are ready to buy a home have often saved for many years to have the opportunity to live “The American Dream.”  Accordingly, it is important that the money set aside for the down payment is easily accessible and in a safe, secure spot, i.e., now would not be a good time to take risk and put that cash in a private equity fund.

To be on the safe side, those who are about ready to purchase a home should put their money in “cash equivalents” that are protected by the FDIC or the United States Government.  In doing so, one might sacrifice return, but will have the peace of mind that the money will be available when needed.  The following are five suggestions as to where one can safely stash the cash:

1. FDIC Guaranteed Bank Accounts: These bank accounts include checking and savings accounts at FDIC member banks. Your money will always be accessible without penalty when the bank is open and via the ATM at any time (barring any ATM withdrawal limits). Additionally, if the bank fails, the government will reimburse you up to $250,000 (now permanently increased to $250,000 per depositor) as a result of the FDIC – Federal Deposit Insurance Corporation. For those accounts which are under this dollar amount, these demand accounts, as they are otherwise known in the industry, are virtually risk free.

2. FDIC Insured Certificates of Deposit (CD’s): Offered by FDIC member financial institutions such as community banks, a CD is a contractual obligation with a bank whereby the client (the lender) receives a guaranteed rate of return for lending money to the bank for a specific period of time, usually ranging from three months to five years. Typically, the longer the time period the client agrees to lend the money to the banking institution, the more interest they will receive. If the funds are not needed for quite some time, one can loan money or invest in a CD that has a longer maturity. It is important to plan accordingly, however, because cashing out of the CD prematurely will result in a penalty; often times, banks may charge as much as six months’ worth of interest.  If you know you will not buy a home for at least three months, a CD could be a viable option for you.

3. U.S. Treasury Bills: U.S. Treasury bills are obligations of the federal government that mature in one year or less. They are considered to be virtually risk-free as they are backed by the full faith and credit of the U.S. government. Treasury bills are purchased at a discount and upon maturity the investor receives the full face value. To make the investment worthwhile, financial experts suggest purchasing at least $10,000 or $20,000.

4. U.S. Savings Bonds: US savings bonds can be divided into two types: Series I savings bond and the Series EE savings bond.  If you are more than a year away from purchasing your home, savings bonds are ideal investments because investors are guaranteed to never lose money.

5. Money Market Accounts: A money market account is another great way to insulate your money while earning higher interest rates (based on the amount you have to deposit).  Money market accounts can be purchased through your local bank and should not be confused with money market funds, which are similar to mutual funds, yet buy cash equivalents as investments.  Money market accounts are almost always FDIC insured if your bank is a member financial institution. Make sure to always confirm that this is the case, however and know that there are withdrawal restrictions.

As always, one must consider their time frame and risk tolerance.  A down payment on a home is not money that can be lost.  Investors must realize that parking their money for the short-term in a safe place will give them peace of mind but most likely a lower return. The key is liquidity, safety and accessibility. After all, your home will most likely be one of your biggest investments.

The Cliff in St Maarten

Depending on what state or country you live in, you might have a different opinion of what a great view is.  For some, the ideal living quarters is a house or condo next to the water.  For others, it’s stepping outside on your patio or porch and overlooking the forestry and world below.  But no matter where you live, you can bet that the better the view, the more money you’ll have to pay to see it.

How much is a great view worth?  Well the quick answer is that it depends on the location but we just might be able to help you quantify the different types of views and how much additional value they bring to a home.  Whether you’re looking for a mountain view, ocean view or just an unobstructed open view, you first need to understand how much the home itself would sell for if there was no view at all.

The best way to evaluate a view would be to find two identical homes, one with a view and one without.  See how much one home sells for vs. the other and contribute the difference to the view and the view alone.  Unfortunately, finding homes like this are one-in-a-million, so the only other way would be to come up with qualifiers that add a certain percentage to a home’s value, based on the view.  So let’s identify the different views available and then see just how much they can increase a home’s value. (Based on identical new homes being built in the same area valued at $500,000 each)

Ground Level, Unobstructed View (1% – 2.5%): This type of view means that you are located at the same level as many of the other houses around you but you have the advantage of having a view that allows you to see a large, non residential space, like the woods.  These views are somewhat undesirable because they’re not jaw dropping but a good one can increase the value of your home by almost 3%. (New sale price might be $512,500)

Rooftop, Partially Obstructed View (3% – 5%): A view from above would suggest that you can almost see over all of the other houses around you but there may be a few houses that partially obstruct your view.  Generally the higher you are, the more value a view can bring to your home, so a rooftop’s partially obstructed view can bring in an additional 5%.  (New sale price might be $525,000)

Unobstructed View from Medium Elevation (6% – 8%): This category is primarily reserved for houses that reside on the top of a small hill.  This particular view can see areas all around a house without any obstructions but aren’t high enough to see far beyond the houses small community.  Having an open area will always command more money than if you can only see a few houses down, so this type of view has the potential to add 8% to the value of your home. (New sale price might be $540,000)

Unobstructed View from High Elevation (9% – 12%): Doing slightly better than the previous view, being able to see an entire city from the comfort of your own home can add significant value to it.  The estimates you see are conservative depending on the city in which you reside as you can bet an Omaha unobstructed view will not be as valuable as a New York City one.  Still, the value of the real estate can increase substantially. (New sale price might be $560,000)

Unobstructed Water View (15% – 80%): The biggest attraction of a view continues to be a large body of water.  Whether it’s a lake, bay, river or ocean, the value of a property will certainly increase a considerable amount.  This view needs to be unobstructed and the more rooms it can be seen from, the better.  Depending on the body of water, the residence can increase in value up to 80%!  This would mean that your $500,000 house has become a $900,000 house, simply because you see what two-thirds of the Earth is made of.

I currently live in a high-rise building with a view of Biscayne Bay on one side, meaning that I had to pay a much higher price to rent my apartment, than if I lived on the other side of this building.  The difference in price for me was around 30%, so moderately priced if you will, compared to the estimates above.  Pricing a view is certainly not an exact science but as more and more properties are constructed, the chances of finding a great view are becoming increasingly difficult.  In just a few years, you may find the value of a great view to be double than what it is right now but only time will tell.

Real Estate has been anything but lucrative over the last few years and home prices have taken quite a tumble.  Thousands of families have been forced out of their homes because they could not keep up with their mortgages and states like Florida (where I reside) are continuing to see falling prices.  Some say now is the time to buy but whether or not you’re ready, make sure to educate yourself as much as you can to understand the potential a property has, good and bad.

If you are in the market to buy your first or next home, a HUD home could potentially save you tens of thousands of dollars on the purchase price.

While buying a HUD Home can save you a lot of money, there are some things to watch out for. In this article we’ll cover the basics of buying a HUD foreclosure home and some tips on getting the lowest price possible.

HUD Homes

HUD Homes are 1 to 4 unit residential properties acquired by HUD as a result of a foreclosure on an FHA-insured mortgage. The condition of HUD foreclosures can vary substantially. I’ve been in some homes that reminded me of the final scenes from The Silence of the Lambs. Some homes, however, were in near move-in condition. Some HUD Homes were built just a few years ago, while others are 50+ years old. Finding the home that’s right for you will take some work, but your willingness to buy a home that needs some repairs and improvements presents an opportunity to buy a home at a big discount.

It’s also important to understand that the availability of HUD housing varies from location to location. In the mid-West, for example, there are many homes to choose from because of the price range (FHA only insures mortgages of a certain dollar amount) and number of foreclosures. In other more expensive areas, you are likely to find far fewer available homes. Fortunately, HUD and its property management contractors offer a convenient way to search for homes online.

HUD Homes Online

On the HUD website you’ll see in the left sidebar a link to HUD Homes. This page provides links to all fifty states and the District of Columbia. Because HUD contracts out the management of its properties, these links will take you to the website run by the property management company for the state you select. For this article, we’ll take a look at Ohio properties, which are managed by National Home Management Solution (NHMS).

Each property management website offers four categories of information you should know about:

1. HUD Home Buyer Information: They provide information on how to buy a HUD Home and on buying your first home. Links to this information typically point back to the HUD website.

2. HUD Home Search: They provide a means to search for homes by city, county and zip code.

While the format of the search results varies from one management company to the next, this screen shot from HUD Homes in Ohio is typical and gives you an idea of the information that is available (click image to enlarge).

From the listing, you can then look at detailed information about each home (click image to enlarge):

From the detail listing you can read an inspection report of the home and details about the home as provided by the management company.

3. HUD Housing Bid Results: Bid results and bid statistics (discussed below) are two critical data points for predicting the minimum bid price HUD will accept for a given home.

It’s critical to recognize that the list price for a HUD Home is almost never the price you’ll pay. For my investments, I’ve bought homes for anywhere between 60% and 87% of the list price. Knowing what HUD’s minimum acceptable bid is takes a lot of trial and error. I probably bid on 15 HUD Homes to get one. But over time, you learn how low you can bid to get a home.

Bid results show you the amount of winning bids. From this you can compare the list price of the home with the winning bid price.

4. Bid Statistics: Unlike bid results, bid statistics shows you all bids on a property (both the winning bid if any, and all losing bids). Coupled with bid results, bid statistics represents extremely valuable information to study when evaluating a HUD Home.

Owner Occupied HUD Homes

As a buyer who will live in the HUD Home, you get several advantages over investors. First, you get to bid on the home first. When HUD housing is first put up for bid, only bidders who will live in the home can bid on it. In the listing of homes, you’ll see the designation “Owner Occupant,” which indicates that the home is open for bids only by those who will occupy the property. After about two weeks, if no acceptable bid is made, investors can bid on the property.

Second, HUD provides a number of incentives for owner occupied buyers. These incentives can change, but typically include assistance with closing costs (currently $2,500), ability to borrow more than the cost of the home to fund needed repairs and improvements, and low down payment financing.

Using a realtor

Only licensed real estate agents can submit a bid for a HUD Home. My strong advice is to find a realtor that has a lot of experience buying HUD Homes. There is definitely an art and science to bidding on these foreclosures, and I’ve seen homeowners bid way too much for a HUD Home due to inexperience. A realtor with experience investing and improving HUD foreclosures would be ideal.

Final Thoughts

I’ve bought five HUD Homes as real estate investments and the fifth one was just this week. It is a 3 bedroom one bath home for which I paid about $40,000. The list price was $65,000. We estimate that improvements will cost $15,000, and we can either rent the property for about $745 per month or sell it for about $85,000. Either way, it should turn out to be a great investment.

Buying a HUD Home for yourself can be equally rewarding. If you’ve bought a HUD Home before, share your experience with us. And if you have any questions, just leave a comment or send me an email.