What are HUD Homes?
HUD Homes are one- to four-unit residential properties acquired by the United States Department of Housing and Urban Development through foreclosures on FHA-insured mortgages. Once HUD is in full ownership of the home, they put it up for sale in order to cover the loss on the foreclosure. There are many benefits to purchasing a HUD home, though you will need an authorized entity such as a real estate agent or mortgage broker to bid on the property for you.
While this may sound like a complicated process, many buyers find that it is not only easier than it sounds, but also well worth the effort.
Buying a HUD Home
While HUD does give priority to owner-occupant buyers, HUD homes are available for all buyers, even investors. Eligible one- to four-unit properties as defined by HUD are either a single-family, duplex, triplex or fourplex.
How to Find a HUD Home
The process for buying a HUD home isn’t nearly as complex as you would assume. As a matter of fact, HUD has a dedicated website for finding HUD homes. Surfing the site is a great place to start, since you can find any HUD homes in any particular area.
The site acts as a portal for the public, brokers, state and local governments, potential owner-occupants, and nonprofit organizations to search the complete inventory of HUD properties for sale. It also allows real estate brokers and other organizations (that are registered with HUD) to place bids on behalf of their clients to purchase a HUD property. Additionally, home buyers can actually use the site to find registered brokers to place bids on their behalf, increasing ease of access.
If finding a home online isn’t your style, you can find HUD homes through a few other methods. A call to your local real estate agent or authorized HUD broker, for example, can be just as effective. There are sometimes even sections in local newspapers that list HUD homes for sale.
If all else fails, just reach out to HUD. They will more than likely send you a list of authorized HUD brokers in your area. The specialists at home.loans are also available to lend a hand. Simply fill out the form below, and a HUD home expert will reach out to you.
The HUD Home Buying Process
If you’ve seen the available HUD homes in the area of your choosing, and you’ve found a few you like, then you’re ready to move on to the next step. Potential buyers should definitely visit these properties in person since HUD homes are typically in poor to moderate condition.
Each listing should include information that you will need to proceed. The HUD bid packages should show:
Number of Bedrooms/Bathrooms
Un-repaired Price and Repaired Escrow (if applicable)
Bid Due Dates
In addition, listings should state their eligibility for FHA financing, or whether or not the home can be insured through HUD from a private lender.
If everything is to your satisfaction, the next best course of action would be to get the house inspected. While you may be more than capable, sometimes hiring a professional inspector is for the best. It’s also smart to compare the price of the HUD home to other sold listings for comparison.
HUD homes should not require an independent appraisal, as the properties are all assessed by HUD up to current standards, taking into consideration lot size, condition, age, and size to name a few.
Bid Packages for HUD Homes
Once the home in question has been inspected and you are sure that it is the one you want, then your broker or agent must submit a bid package to HUD. The bid package should contain all the necessary contracts required by the local HUD office, as well as a 5% deposit made in cash, money order, letter of credit (if applicable), or cashiers check.
Bid packages normally contain the sales contract, instructions, an addendum on lead based paint and a “Forfeiture of Earnest Money Deposits” document. This document states that if the buyer does not perform after submitting the contract, then the 5% deposit is retained by HUD, and is no longer refundable.
Home buyers are allowed to bid more or less than the asking amount for a HUD home. If the bid is not successful, you will be refunded the earnest money deposit. If the bid is successful, the earnest money deposit is then used as part (or entirety) of your down payment on the home. Earnest money deposits typically range from $500 to $1,000, depending on the listing price of the HUD home.
HUD home buyers are given a period of 30 days to close escrow once the bid has been accepted. In some cases, the deadline is extended by the HUD, but this requires prior written approval. Extensions are typically reserved for private lenders who require more time to process a loan application.
HUD has also addressed the many potential questions that a homebuyer may have about the program in an easily accessible HUD Home FAQ sheet.
Benefits of Purchasing a HUD Home
HUD homes are an attractive option for home buyers who are looking for affordability and don’t mind putting a little work into their future home. They can net a buyer thousands in savings when done right. Some other attractive benefits of the HUD home program include:
HUD will cover up to 5% of the closing costs, which can result in huge savings, and more cash to make repairs.
Purchasing a HUD home that is eligible for FHA financing means skipping the appraisal stage and moving in sooner.
The real estate agent or broker that prepares and submits your bid package does so at no cost to you.
Buyers may qualify for 3% down payments.
Eligible HUD homes can have repair loans rolled into the mortgage, making them easier to manage.
HUD homes may not be for everyone, but they could be the perfect choice for home buyers or investors that know a good deal when they see one. Finding a HUD home is not only easy, thanks to the definitive HUD home listing site, but can be much less stressful than the typical home buying process.
Speak with a HUD Home Specialist
HUD homes can be an attractive option for anyone from the savvy investor to a first time home buyer. If you are willing to endure the HUD home buying process of bidding on a home that might require a little work, then you may be able to save some serious cash! If you find that Purchasing a HUD home sounds ideal for you, the team at home.loans is standing by to help make it happen. Fill out the form below and one of our mortgage specialists will reach out to you.