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HUD Homes: Houses of Horrors or Bargains?

"It's the average to low end homes that typically show up in the HUD inventory," said Erica Ramus, a Pottsville, Penn. realtor who has handled numerous HUD deals.

"Most HUD homes are in average to poor condition," she added. "There are bargains, but you have to be very careful in your shopping."

Many of those homes also have been unoccupied for some months, sometimes years.

See a house - and there are many - for under $2,500 and, said Bruce Ailion, a Georgia realtor who has been involved in 60 HUD purchases in the past couple years, you'll find a typical scenario: "The roof is leaking, it has no doors, and the plumbing has been removed."

Most HUD homes are in much better shape than that, said Ramus, but she stressed that buyers need to go into buying a HUD house with open eyes and an understanding that the dwelling may need substantial repair before it is inhabited.

Don't think, however, that buying a HUD homes has to be an all cash deal. Many can be bought with the government's FHA financing - requiring as little as 3% down - but, advised Ramus, work with a lender who is familiar with HUD's idiosyncracies, because she has seen otherwise good deals fall apart because the lender just did not get that it is HUD's way or the highway. Period.

A sliver of good news: in some cases the houses may be sold with the possibility of also borrowing substantial fix up money. On the HUD site look for the notation "203K eligible...Yes." This can make significant repair monies available - sometimes exceeding the selling price of the home - if an appraisal shows that doing the work will be reflected in a bump in the home's value.

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