How to Buy a HUD Home

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U.S. Department of Housing and Urban Development (HUD) residential foreclosures are available for sale throughout the U.S. The sales process for purchasing a HUD home is more complicated than buying a home from an individual, so do a little research before you jump on that HUD website or ask your agent to show you HUD homes.

The Federal Housing Administration (FHA) is part of HUD. It provides federal mortgage insurance. A lender can file a claim for the balance due on the mortgage when a foreclosed home was purchased with a loan insured by the FHA. The FHA pays the lender's claim, transfers ownership of the property to the HUD, and the HUD sells the home.

How Much HUD Homes Cost

HUD homes are appraised and then priced at fair market value based partly on their location. The price of a home in need of repairs is adjusted downward to reflect the investment a new owner would have to make to improve it and make it livable. Ask your agent to provide comparable sales for other HUD homes in your area if there are any, but there's no guarantee that you'll get a break on the price.

Home Condition

HUD homes are always sold as is, so the new owner is responsible for all repairs and improvements. The best investment you can make is to order a home inspection before you buy a HUD home, so you know what you're getting into and can avoid any surprises.

How to Find HUD Homes

You can view HUD listings by following the state links on the HUD's website. Each state's internet destination is set up a little differently, so take some time to browse the search engines and the page layout. A HUD-approved real estate broker—which are often listed on the agency's website—can show you the property when you've located a home that you'd like to see. If the home you want to see is located in your area, you can also contact your preferred local real estate broker and ask if the office is approved to show HUD homes.

Buying a HUD Home

HUD foreclosures are sold using a bidding process, and you must hire a licensed real estate agent to assist you with this. There's an offer period during which sealed bids are accepted through your agent. All offers submitted are opened at the end of that period, and the HUD usually accepts the highest bid or the bid that brings them the highest net. If the home remains unsold after the initial period, bids are then opened as they're received. During the initial offering, HUD homes are available only to those who wish to buy them as their primary residences. Investors are permitted to bid if an owner-occupant doesn't do so during the initial bidding process.

Your agent will be notified if your bid is accepted, and you'll be given a settlement date, usually 30–60 days from the date of your accepted contract. HUD pays real estate brokers an industry-standard commission for facilitating the sale of its homes. The selling agent must remember to insert specific wording into the contract to confirm that the HUD will pay a commission if they want to be paid.

HUD Financing

HUD does not finance homes, so you'll have to apply for a mortgage or pay cash. Your financing must be approved before you make an offer.

You can lose the earnest money deposit you submitted with the offer if your bid is accepted and you don't close on the house, so ask your agent about this possibility before signing the offer.

Professional Home Inspections

Home inspections are recommended for any home purchase, but especially foreclosures. You should have a HUD foreclosure inspected for your own peace of mind even before making an offer. It will help you to determine a bidding price, especially if repairs are required, and it can tell you if this home is really something you want to get involved with.

Homes built before 1978 might contain lead-based paint, so learn more about lead paint hazards before making an offer. Other items to consider are asbestos content, buried storage tanks, and similar environmental hazards.

Other HUD Programs

The HUD might sell foreclosures for as little as $1 to approved nonprofit organizations and government agencies if they're not sold within six months. They must then be used to create housing for families in need or to benefit neighborhoods. The HUD also offers special home purchase programs for teachers and full-time law enforcement officers.