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How to buy HUD homes
Foreclosed homes account for nearly a third of all properties for sale on the market today. This large amount of distressed real estate is bad for market values, but good for homebuyers and investors.
Nearly half of all these foreclosed properties are HUD foreclosures or government-owned homes. The sale of these properties is similar to a regular foreclosure property, but there are some differences. Understanding what HUD homes are, as well as the difference in the sales methods used to move these types of properties, will allow you to take advantage of these great deals.
What is HUD?
The Department of Housing and Urban Development (HUD) is a federal government program that promotes affordable homeownership. HUD regulates many different housing programs, including the Federal Housing Authority (FHA) Mortgage Insurance Program. HUD is not a lending institution.
What classifies a HUD Home?
To be considered a HUD home, a foreclosed property must have been backed by FHA mortgage insurance. When a home enters into foreclosure, the lender usually assumes title to the property when the proceeding is completed. However, when a mortgage has FHA insurance, the insurance policy pays the lender for any outstanding balance, relieving it of possession. HUD then assumes ownership of the property when the lender has been paid.
Are HUD homes cheap?
HUD properties are appraised for value just like any other home. There are, however, other considerations that HUD makes that other lenders do not. For instance, if a HUD property is in a very distressed area, it will reduce the price to encourage sales. If the home is in need of major repairs, the cost of the repairs will be deducted from the value. HUD will not make any repairs to the home. All HUD homes are purchased "as-is."
How do you find HUD listings?
There are several places that you can find HUD homes for sale. The first place to check is the HUD website, which is where you will find properties located all over the country. States will also list HUD properties for sale on their sites. Certified HUD Realtors® can provide listings of HUD homes in your area. You can also check the Multiple Listing Service (MLS), which most Realtors® use, for listings of properties available.
HUD does not sell its properties outright. You must work through a HUD-approved Realtor® to purchase any property.
Can you purchase HUD properties easily?
When a home is first offered for sale through HUD it is by a bid process. Sealed bids are accepted through the Realtor® for a specific period of time. Most bids require a deposit as a sign of good faith. Once the bid opening date arrives the highest bidder will be able to purchase the house.
HUD encourages people who are looking to move into properties as their main residences to bid, and these buyers will receive preference. Investors are not discouraged to bid on properties; however, they will take second seat to homeowners. If no buyers bid on the property that are willing to move in the home, investors will be allowed to make the purchase.
It is very important to have your financing in place when you make the initial bid. HUD is very strict about time lines and if you are awarded the sale, you must be able to pay for it immediately. Failure to do so may result in the loss of your deposit. Remember: HUD does not finance.
Consider a home inspection
Remember, HUD homes are sold "as-is," and you should know what you are getting into before committing to buy. Older homes, for example, may contain lead paint that will have to be removed. These same homes may have asbestos insulation or old wiring that is not up to code. While the home may be perfect in all other ways, you will have to make costly repairs to get it up to snuff. A home inspection will help you evaluate if the cost is worth it or not.
Does HUD offer any special purchase programs?
HUD does have programs in place that will give preference to teachers and full-time law enforcement employees. These programs vary and should be reviewed when you decide to make a purchase.
How long do these foreclosed properties remain available?
HUD normally only lists foreclosed properties for six months. After that time they revert to a neighborhood enhancement program that offers homes for $1. These homes can be purchased by local governments or certified non-profit agencies that will use the homes to provide housing for needy families.