Understanding the Process of Buying a HUD Home

How to buy a reasonably priced foreclsure

HUD home with a for sale signForeclosed homes that were bought or refinanced with FHA money are called HUD properties.

When a homeowner is unable to make the monthly mortgage payments and defaults on the loan, the FHA/HUD steps in and pays the lender the outstanding mortgage debt and takes ownership of the property.

The federal government will then offer these homes at a discount to market value in order to entice purchasers. After the value of a HUD property is determined, it is sold as-is, with no repairs or modifications made to the property during the sale process.

How Do I Get a List of HUD Homes

Go to https://www.HUDHomestore.gov to see a list of HUD homes across the United States.HUD Homestore screen shot

How Do I Purchase a HUD Home

Step # 1. Get pre-approved by a lender.

While HUD properties are appraised to establish their value and then priced appropriately, they are sold “as-is,” which means that no repairs or modifications are made to the property prior to a sale.

In order to receive a genuine pre-approval, you should gather up the following documents for the lender:

1. W-2''s for the previous two years
2. Pay stubs covering the most recent 4 weeks
3. Bank statements for the most recent two months
4. Alimony and child support documentation, if applicable.

Step # 2. Locate a HUD approved real estate agent.

HUD properties are sold in conjunction with HUD approved real estate agents and brokers. Offers are only accepted through HUD-registered real estate agents. HUD approved real estate agents can be found on the HUD Homestore website.

HUD approved real estate agent

Step # 3. Visit the HUD Home Store website to locate a suitable home.

HUD properties are sold in their current, as is condition. You'll notice that the property card has three codes.

IN-Insurable: This designation indicates that the property satisfies the regular FHA 203(b) borrowing guidelines.

IE-Insurable with escrow: The appraiser determined that repairs are necessary to meet the appraisal standards for an FHA (203B) mortgage. Repairs must not exceed $10,000, with a 10% contingency. The maximum escrow amount is determined by the total cost of repairs necessary to bring the property into compliance with FHA guidelines.
Within 90 days of the loan's closing, repairs must be performed.

UI-Uninsurable: The property requires more than $10,000 in renovations to meet FHA standards for an FHA 203B mortgage. Certain uninsurable properties may be eligible for an FHA 203(k) loan, but not all. A 203(k) loan is an FHA rehabilitation loan that includes the cost of repairs and improvements in the loan amount.

Step # 4. Obtain a letter of pre-approval from the lender for the home.

After locating a suitable home to bid on, get a pre-approval letter from the lender.

Step # 5. Make an offer on the HUD-assisted property through a HUD approved real estate agent.

HUD auctions off foreclosed HUD properties. To put a bid on a HUD house, you must use a licensed real estate agent. HUD will reimburse the real estate agent if the commission request for the Realtor® is included in the purchase agreement. HUD will cover up to 3% of seller-paid closing expenses (seller assist).

The real estate agent must submit the sales contract packet within 48 hours of HUD's approval. The earnest money must be sent within 72 hours after receipt of the management company's instructions. The earnest money deposit is $500 for a purchase price of $50,000 or less. A $1,000 earnest money deposit is needed for acquisitions of $50,000 or more.

Step # 6. Submit an application for a loan (if financing the purchase)

If HUD accepts and signs the offer, the buyer has 15 days to conduct a professional home inspection (if wanted) to ascertain the existence of any material property problems not stated in the Property Condition Report.

Regrettably, you are responsible for turning on the utilities. Both the house inspector and appraiser need the utilities to be operational in order to do their evaluations.

The settlement date is typically 30–60 days after the contract is approved.

Pros and Cons of buying a HUD home

1. Lower cost than traditional homes
2. Can be a good investment
3. May come with special financing
4. May have less competition when bidding
5. More affordable than other types of housing

1. HUD homes may need repairs
2. They may be in a poor location
3. They may not appreciate in value
4. The purchase process can be complicated
5. There may be little or no negotiating room on the price

Rotating question markFrequently Asked Questions (FAQ)

Q. Are HUD home prices negotiable?

A. Yes, HUD home prices are negotiable. The asking price is just that—an asking price. It's always worth trying to negotiate a lower price on a HUD home. Keep in mind that HUD homes are sold as-is, so you'll need to factor in any repairs that may be needed into your offer.

Q. Are HUD homes a good deal?

A. There is no simple answer to this question, as it depends on a variety of factors, including the specific home you are considering and the current market conditions.

Generally speaking, though, HUD homes can be a good deal, as the federal government often offers them at a discount. Always consult with a real estate agent before making any decisions, to get an accurate assessment of the current market conditions and what they mean to you.

Q. Are HUD homes a good investment?

A. There is no easy answer when it comes to whether or not HUD homes are a good investment. On one hand, you're getting a home at a discounted price, which can be appealing.

However, there may be some hidden costs or repairs that you'll need to take care of, which can end up costing you more in the long run. It's important to do your research before making any decisions.

Q. Are HUD homes bad?

A. There is no one-size-fits-all answer to this question, as the quality of HUD homes can vary depending on the specific property. However, in general, HUD homes can be a great value for buyers who are looking for a good deal on a home.

Q. Are HUD homes cheaper?

A. HUD homes are typically cheaper than other homes on the market. This is because the government sets a price floor that is below market value. However, the availability of HUD homes varies greatly from market to market, so it is important to do your research before you start looking.

Q. Are HUD homes FHA approved?

A. HUD homes are not FHA approved, but they are eligible for FHA financing. HUD homes are sold as is, so buyers should be aware of any potential problems before making an offer.

Q. Are HUD homes foreclosures?

A. HUD homes are not necessarily foreclosures. HUD homes are properties that have been acquired by the Department of Housing and Urban Development (HUD) through foreclosure, deed-in-lieu of foreclosure, or other methods.

Q. Are HUD homes good to buy?

A. There is no one-size-fits-all answer to this question, as the pros and cons of buying a HUD home will vary depending on the individual buyer's needs and situation. However, some potential pros of purchasing a HUD home include the fact that they are often priced below market value, and that they may come with some repairs or updates already completed.

Q. Are HUD homes worth buying?

A. This is a difficult question to answer. It depends on a variety of factors, including the specific home and the market conditions in the area where it is located. Generally speaking, though, HUD homes can be a good value for buyers who are looking for a good deal on a home.

Q. Can anyone buy a HUD home?

A. Yes, any U.S. citizen or permanent resident can buy a HUD home. HUD homes are properties that have been foreclosed on and are now being offered for sale by the U.S. Department of Housing and Urban Development (HUD).

Read more questions and answers about FHA loans


In conclusion, buying a HUD home is a great option for anyone looking for a new home. The process is simple and can be completed in as little as six easy steps. So if you're in the market for a new home, be sure to consider a HUD home.

SOURCE: Buying a HUD Home

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