How to Buy a HUD Home
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 that associated with 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. FHA pays the lender's claim, then transfers ownership of the property to HUD. Then HUD sells the home.
How Much HUD Homes Cost
HUD homes are appraised then priced at what is supposed to be 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 really no guarantee that you'll get a break on the price.
HUD Homes Sold "As Is"
HUD homes are always sold "as is." 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.
How to Find HUD Homes
You can view HUD listings by following the state links on 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 can show you the property when you've located a home that you'd like to see. HUD-approved brokers are often listed on the agency's website. You can also contact your preferred local real estate broker and ask if the office is approved to show HUD homes if the home you want to see is located in your area.
Buying a HUD Home
HUD foreclosures are sold using a bidding process. You must hire a licensed real estate agent to assist you with this process. 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. 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.
Your agent will be notified if your bid is accepted. You'll be given a settlement date, usually 30 to 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 HUD will pay a commission if he wants to be paid.
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. Ask your agent about this possibility before signing the offer.
Professional Home Inspections Are Recommended
Home inspections are recommended for any home purchase and particularly for 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. 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 you might want to learn more about lead paint hazards before making an offer. Other items to consider are asbestos content, buried storage tanks, and similar environmental hazards.
Buying a HUD Foreclosure for Investment Purposes
HUD homes are available only to those who wish to buy them as their primary residences, at least during the initial offering. But investors are permitted to bid if an owner-occupant doesn't do so during the initial bidding process.
Other HUD Programs
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. HUD also offers special home purchase programs for teachers and full-time law enforcement officers.