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4 Tips for Buying a HUD Home

Written by Ilyce Glink on October 29, 2010 in Real Estate  |   18 comments

A HUD home is nothing more than a house that was purchased with an FHA loan that has since fallen into foreclosure. (I’m not sure why these homes aren’t called “FHA foreclosures,” which would be more intuitive for home buyers and investors, but the Department…

HUD Homebuyer option

A HUD home is nothing more than a house that was purchased with an FHA loan that has since fallen into foreclosure.

(I’m not sure why these homes aren’t called “FHA foreclosures,” which would be more intuitive for home buyers and investors, but the Department of Housing and Urban Development [HUD] is the federal office that takes ultimate responsibility for FHA and its home loans gone wrong.)

Buying a HUD home is different from buying another type of foreclosed property. For starters, HUD homes are sold exclusively online in an auction process known as an “offer period.”

You may make an online offer during the offer period. At the end of the offer period, all offers are opened and considered to be received simultaneously. The highest acceptable net bid is then accepted, and the buyer’s agent is contacted.

If the home isn’t sold in the initial offer period, buyers may submit a bid any day of the week, including weekends and holidays. Bids are opened the next day.

What you probably don’t know is that if no one makes an offer for a HUD home within a certain amount of time, HUD lowers the price. The price of the HUD home continues to drop until an offer is made and accepted.

How do you find out if your bid was accepted? It’s your agent’s responsibility to check the website to see if your bid was accepted and to complete all the necessary paperwork.

Companies like PEMCO Ltd. are direct contractors with the government. They list and sell these homes online from HUD. Only agents who are registered with HUD may represent buyers and investors in the purchase of these properties.

There used to be a different site for different areas of the country, but it’s been consolidated into one website: www.hudhomestore.com.

How can you navigate the website and find the right home to buy? Follow these four tips for buying a HUD home:

  1. Find the right real estate agent. Only real estate agents who are registered with HUD may represent home buyers and investors in the purchase of HUD homes online. But just because an agent is registered with HUD doesn’t mean he or she is going to be the best agent to represent you in the purchase of a HUD home. To find the right agent, you can search through the website that lists HUD homes in your area and find out which agents represented the most winning bids. Interview the top two or three agents. Be sure to ask how long the agent has represented buyers and investors, how the process typically works, whether the agent will accompany you to inspect the property, and what special knowledge the agent has garnered from writing so many winning bids.
  2. Inspect the property before making an offer. The local listing broker (who should be listed on the HUD home website) can gain access to the property and show it to you. However, you don’t need to call the listing broker to see the house with your agent. Any HUD registered agent can gain access to a HUD home. When you’re inspecting the property, take a lot of notes and photos of the property so you can be mindful of any improvements that need to be made when constructing your offer.
  3. Make an offer. The offer process on a HUD home is probably different from what you’re used to. Offers can be cancelled with no earnest money forfeiture. Once an offer is submitted, it can be cancelled before the HUD agent opens the bid electronically, or after by sending an email to the company managing the home. Until the contract is signed, the earnest money is not in jeopardy, so there are a few days after the bid is accepted to cancel.
  4. Be ready to close on your HUD home. Right now you might forty-five to sixty days to close on your HUD home, but HUD is moving toward 30-day contracts so get your financing together ahead of time. You may be able to qualify for FHA financing or special FHA deals, like the $100 Down Payment Incentive program or the Good Neighbor Next Door program, which offers a discount for HUD homes to law enforcement officers, teachers, firefighters, and emergency medical technicians who meet eligibility requirements. But it helps if you get your loan documentation together ahead of time, including your W-2; your paycheck stubs; your tax returns; copies of your savings, investment, and retirement accounts; and documentation of other assets and liabilities. You’ll need to provide copies of your driver’s license and other identifying information. Create a file for these documents so they’re ready when you are. You will also have to submit a prequalification letter with the sales contract in order for it to be accepted. The letter must indicate the buyer is qualified for the amount of the contract, the type of financing and any assets that have been verified for closing.

For more details, check out this HUD home FAQs page, or start your search for a HUD home in your state.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

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18 comments

  1. Katie says:

    Are HUD homes typically cheaper?

  2. Editor, Equifax Personal Finance Blog says:

    Greg Freeman via ActiveRain:

    Great post. thanks for sharing. HUDs have been good for me.

    http://activerain.com/blogsview/1940836/4-tips-for-buying-a-hud-home

  3. Editor, Equifax Personal Finance Blog says:

    Comment from Lynn via ActiveRain:

    Ilyce, good information. Seems there is more and more HUD homes coming on the market.

    http://activerain.com/blogsview/1940836/4-tips-for-buying-a-hud-home

  4. Editor, Equifax Personal Finance Blog says:

    Comment from Jose via ActiveRain:

    Ilyce, it is my understanding that not all "FHA foreclosures" end up becoming a HUD home. I believe each bank that issued the mortgage with FHA insurance has the ultimate decision if they are going to submit a claim to FHA. This is the reason why there are not that many HUD homes available.

    Thank you for posting this information. It was a good summary.

    http://activerain.com/blogsview/1940836/4-tips-for-buying-a-hud-home

  5. Ilyce Glink says:

    @Katie:

    HUD Homes can be quite inexpensive. But there are other benefits of buying them, including getting a full inspection report before you even place your bid. Be very careful to work with someone who really knows what they're doing. You'll need an agent who is able to handle the bidding process for you. Good luck.

  6. Étienne says:

    This is the wonderful article, And i agree with you, Buying a HUD home is different from buying another type of foreclosed property. For starters, HUD homes are sold exclusively online in an auction process known as an “offer period.Only real estate agents who are registered with HUD may represent home buyers and investors in the purchase of HUD homes online. And these all the great tips.
    Lake Placid Real Estate

  7. Shawn says:

    I just bought one. Or am in the process. The location was ideal so I bid 1k over their asking price which I was told is typically 30% off its suggested value. My agent has that used car salesman vibe but similar units in the complex are about 30% more. I placed my bid during the 10 day sealed bidding period and heard nothing after 10 days so I assumed I had lost. Then a month later the agent came back to me saying my bid was a backup bid and won. Now I’m scrambling to get the financing done.

  8. Germaine says:

    Do you get a “CLEAN” TITLE when you purchase a HUD Home? Or do you have to pay for any LIENS, and over due HOA fees that are due or the property.
    Thank

  9. Floyd says:

    WOW, I live in South Carolina and plan on relocating to Texas in the near future. This article was full of information that I didn’t know but need so that I can keep my options open for my future home purchase. Thank you so much for sharing your knowledge.

  10. AL,10/31/2013 3:36PM says:

    If no one makes an offer & the price goes down where do you see that published? Escrow deposits are what percentage of the purchase contracts?

    Al.

    • Jo says:

      Al~ I don’t know how it works by you, but in my state EMD is $1000 if the house is $50K+ and $500 if it is under 50K. On the HUD website, when the price gets reduced, you can tell when you look at the listing. The current price will be listed & the appraised value listed will be higher. I typically check the HUD listings daily when I am watching a house.

  11. Paul Stevens says:

    I’m 30 days into the purchase of a HUD home through Pemco. Everything is signed and I’m waiting for a phone call to pay.

    We just found out the the apartment complex as a whole has a lien placed on it from the county (Water, sewage and trash). The unit itself is clear.

    What are your thoughts? I was under the impression that all HUD properties are free and clear of all liens.

    Thank you.

    • Anonymous says:

      Hi Paul,

      I have sold real estate for over 20 years, and every time I have sold a HUD home, the title company has required that all prior liens, taxes, and any former bills be paid by by HUD befor they will allow the property to close. Check with your agent, and have them call the title company and ask if that is being taken care of.

  12. Cliff Adkins says:

    The best advice is DON’T Purchase a HUD property!!! If the contract says subject to home inspection, then you are out of luck in getting your earnest money back if there are items that prohibit you from buying the property. Pemco LTD is a group of unskilled overpaid employees who serve no useful propose. The contracted closing attorney is working only to rip you off!!
    If you find a Fanny-Mae house buy it, no problems and a very professional group to do business with. HUD is a joke and a burden on the tax payers as well as any one who bids on their houses.


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