How To Buy A HUD Home
What is a HUD home? They 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.
How much do HUD homes cost? HUD homes are priced at fair market value for their location based on appraisal. If the home is in need of repairs, the price is adjusted according to the cost of repairs the buyer will have to make. HUD homes are typically less expensive than regular houses, so buyers can get more space for less money. 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.
How do I find a HUD home? You can view HUD listings on their Web site at www.hud.gov/offices/hsg/sfh/reo/homes.cfm. There are links to each state’s particular HUD web site. The HUD and state Web sites list agents who work with HUD homes, because only a registered HUD real estate broker can show you a HUD property – you can’t buy it without going through one of these agents.
How do I make an offer? HUD foreclosures are sold using a bidding process. There's an Offer Period, during which sealed bids are accepted from agents – no bids from private buyers are accepted. When the period is over, HUD accepts the highest bid. Unlike conventional home sales, there is no negotiating on price between buyer and seller.
If your bid is accepted, your agent is notified, and you’re given a settlement date, usually 30-60 days from the date of your accepted contract. HUD pays real estate agencies up to 6 percent commission for the sale of the home, but only if specific wording is added to the contract verifying that HUD will pay commission.
Before submitting a bid, buyers must be pre-approved for financing. Since HUD itself does not provide financing, you must arrange for conventional financing.
Should I have a professional home inspection? Absolutely. There are repair issues as well as environmental factors – asbestos, buried storage tanks, lead paint. If an offer is accepted, the buyer has up to15 days to complete any inspections.