How To Buy A HUD Home
What is a HUD Home?
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.HUD homes are homes acquired by the U.S. Department of Housing and Urban Development (HUD). If a foreclosed home was purchased with a loan insured by the Federal Housing Administration (FHA), the lender files a claim for the balance due on the mortgage. The FHA pays the claim, then transfers ownership of the property to HUD, which sells the home. HUD homes are priced at fair market value for their location based on appraisal. Teachers and police officers are given a 50 percent discount on HUD homes. Investors often purchase HUD homes to fix up themselves and sell at a profit. HUD homes are sold as-is – HUD is not responsible for repairs and improvements.
You can view HUD listings on their Web site at www.hud.gov/offices/hsg/sfh/reo/homes.cfm. The HUD Web site lists registered HUD real estate brokers because only they can show you a HUD property.
HUD foreclosures are sold using a bidding process. There's an Offer Period, during which sealed bids are accepted from agents. HUD accepts the highest bid offered. Unlike conventional home sales, there is no negotiating on price between buyer and seller. Before submitting a bid, buyers must be pre-approved for financing.
Who Can Buy a HUD Home?
Anyone who has the required cash or can qualify for a loan (subject to certain restrictions) may buy a HUD Home. HUD Homes are initially offered to owner-occupant purchasers (people who are buying the home as their primary residence). Following the priority period for owner occupants, unsold properties are available to all buyers, including investors.
Should I Get a Home Inspection?
HUD does not warrant the condition of its properties and will not pay for the correction of defects or repairs. Since the new owner will be responsible for making needed repairs, HUD strongly urges every potential homebuyer to get an inspection from a licensed professional home inspector prior to submitting an offer to purchase. If you are interested in acquiring a HUD Home that is in need of repair, you may be interested in applying for an FHA 203(k) Rehabilitation Loan. When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high-interest rates and short amortization periods. FHA's 203(k) Rehabilitation Loan is designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property.
What About Financing?
HUD does not provide direct financing to buyers of HUD Homes. Buyers must obtain financing through either their own cash reserves or a mortgage lender. If you have the necessarily available cash or can qualify for a loan (subject to certain restrictions) you may buy a HUD Home. While HUD does not provide direct financing for the purchase of a HUD Home, it may be possible for you to qualify for an FHA-insured mortgage to finance the purchase.
Does FHA Offer Any Special Discount Sales Programs?
FHA REO properties located in designated Revitalization Areas are available at a reduced sales price to law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments. Read more about these Good Neighbor Next Door Initiatives. You can also view maps of REO properties and special programs such as Revitalization Areas with HUD's Single Family Home Locator.
Where Can I Learn About Available HUD Properties?
Any single-family property acquired by HUD FHA will display a sign identifying who is managing the property before it is listed for sale. During this time the property is appraised, title issues are resolved, if necessary, and a determination is made about the property's eligibility for HUD's discount sales programs. Property listings are posted on HUD Home Store.