“You may be able to purchase a HUD home below market value or receive more house for your money!”
“What is a HUD home?” is a question I hear often. Sometimes people crinkle their face when they ask, as though the acronym “HUD” smells bad. I assure you it doesn’t. In fact, HUD homes may be a great option.
What is a HUD Home?
From HUD’s Website
“A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.”
When the Department of Housing and Urban Development (HUD) takes possession of a home, they intend to recoup losses quickly. They contract with local agencies and seller agents/brokers to maintain the homes and to help market the properties. To find available HUD homes in your area, use their website www.hudhomestore.com.
Common Questions About HUD Homes for Sale
Q: Who can buy a HUD home?
Anyone who has cash or can qualify for a loan can purchase a HUD home. You must have a pre-approval or verification of funds to bid on a HUD home. Certain restrictions may apply to financing.
HUD homes are offered to Owner Operator Purchasers (OOPs) first. To be considered an owner-operator, you must intend to live in the home more than 50% of the year for at least the first year.
After the initial offering, HUD homes are open to anyone, including investors. A HUD home can only be purchased by the same buyer every two years.
Q: What is wrong with these homes?
The condition of HUD homes can vary from excellent to in need of major renovation. You can see a basic inspection report of HUD’s findings on their website along with a slew of addendums related to the home. HUD homes are sold “as is”, so be prepared to do your own inspection.
Q: Does HUD offer any special discount programs?
The Good Neighbor Next Door Initiatives program is offered to help revitalize key areas. The program offers deep discounts to eligible public service employees and nonprofits.
Q: Who can place an offer on a HUD home?
In order to place a bid on a HUD owned home, you must use a real estate agent that works under a certified HUD broker. I am able to place such bids, as I currently work under Sanpete Valley Realty.
HUD has their own procedures and even their own purchase contracts. Make sure your agent/broker is knowledgeable about the whole process so you don’t miss out on a HUD deal.
How the HUD Home Bidding Process Works
There are two basic types of HUD properties: insured and uninsured. Uninsured properties can not be financed using an FHA loan. Insured properties can qualify for an FHA loan.
Keep in mind that uninsured properties tend to need more than $5,000 worth of repairs.
HUD homes are sold online only. As previously mentioned, you will be better off using a real estate agent that understands HUD procedures.
Before your agent can bid on your behalf, you will need to have proof of funds or a pre-approval for financing.
The Exclusive Bidding Period
This period is designed for Owner Operators only. Investors can not bid. It generally runs for 15 days on an insured property and 5 days on an uninsured property. During this time period, your agent can submit your bid on HUD’s website.
All bids are opened the day after the exclusive bidding period ends. The best net offer to HUD is accepted as long as it is not deemed inadequate.
If no offers were accepted, sometimes HUD will issue a counter offer. This is usually the least amount HUD will take for the property, and you should act on it accordingly. If no reasonable bids are accepted during this exclusive period, the property will enter the extended period.
The Extended Period
HUD homes in the extended period are open for bidding to anyone, including investors. Homes enter this period after the exclusive period, if no winning bid is selected. Bids are opened on these properties in the order they are received.
Understanding Bidding
If your bid is accepted, HUD will let you know so you can continue through the process. If another person wins the bid but fails to complete the purchase of a home you have also bid on, HUD may accept your bid days or weeks later.
A few things to note:
- You can submit more than one bid.
- You can rescind your bid. Ask your agent for details.
- You can change your bid.
So They Accepted My Offer, Now What?
Your agent will help you with the purchase contract and all other relevant paperwork.
HUD homes have a flat rate for earnest money of $500 dollars for homes under $50,000 and $1,000 for homes over $50,000.
After the contract is accepted and signed, you will be given 15 days to complete a home inspection. Make sure to file the Utility Activation form quickly and schedule appointments to have utilities turned on. Plan to schedule your home inspection in tandem with the utilities being turned on.
HUD will not allow you to turn on utilities if damage to those systems was found during their evaluation. You will be responsible for any damage that occurs as a result of the utilities being turned on or for the re-winterization of a property, if applicable.
I strongly recommend conducting the Pre-Closing inspection as close as possible to the day of closing to determine if the property is in the same condition as it was when it went under contract. Once a property is closed, HUD will not make any settlement for damages or repairs.
Final Thoughts
HUD homes are often priced very competitively. Make sure you find a knowledgeable brokerage and agent to make the process go smoothly. The benefits are well worth the effort for those trying to score the best deal on the home of their dreams.
What have you experienced with the HUD home buying process? Tell me in the comments.
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