Buying a HUD Home:

What is a HUD Home? A HUD Home is a property with an FHA insured mortgage that has gone into default. The lender acquires the property, submits FHA insurance claim, and then conveys ownership to the U.S. Department of Housing and Urban Development (HUD). HUD will then sell the home through their Asset Manager (AM).. A HUD Home can be a single family residence (SFR), townhouse, condominium, mobile home or multiple family attached home up to 4 units.

Who can buy a HUD Home? HUD Homes may be purchased by any individual, company, HUD-approved non-profit organization,a public service individual (firefight, police officer, teacher) or government entity that can secure financing or pay cash for the property. Interested buyers must submit bids through a HUD-registered real estate agent like myself.

There are two main types of HUD Home purchasers: Owner Occupants and Investors. An owner occupant buyer is a person who will live in the property as their primary residence for at least one year and has not purchased another HUD Home as an Owner Occupant within the past two years. Investor buyers are people who purchase the property as an investment or as a second home, or who do not qualify as an Owner Occupant.

How can I buy a HUD Home? If the buyer is financing the purchase of a HUD Home, HUD first requires the buyer to be pre-approved for a mortgage in an amount sufficient to purchase the property. If the buyer is paying cash, the buyer must provide verification of funds. Once the buyer has obtained a pre-approval or verification of funds, the buyer should find a HUD Registered Agent, who can help the buyer find an appropriate property and submit a bid on it. All buyers must submit their bids online through a registered real estate agent like myself.

In typical real estate transactions, the buyer finds the home they like and their real estate agent presents their offer to the seller, who may counter the offer. The buyer and seller may negotiate until mutually agreeable terms are reached or until they reject the terms and move on. When purchasing a HUD Home, there are no negotiations between the buyer and seller. HUD Homes are sold by a sealed bidding process, where all interested buyers submit their best offer online and usually the highest netting bid (after all costs are paid) wins the sale.

HUD Homes are initially offered for owner occupant purchasers. Following the owner occupant priority period, unsold properties are available for all buyers, including investors. Bids can be submitted any day of the week, including weekends and holidays, and are opened for review the next business day following the bid deadline.

What is the Exclusive Listing Period for HUD Homes? When a HUD Home is first listed for sale, priority is given to owner occupants, non-profit organizations and government entities. The duration of this Exclusive Listing Period will vary depending on the property’s FHA insurability.

If the property is being sold as Insured (IN) or Insured with Escrow (IE), the Exclusive Listing Period is 30 days for owner-occupant buyers, non-profit organizations, and government entities. Bids received during the first 10 days are considered to be received simultaneously, and the initial bid review is on the 11th day of the Exclusive Listing Period. If there is no winning bid, bids continue to be reviewed on a daily basis until the 30-day period ends.

If the property is Uninsured (UI) or Uninsured 203(k) eligible (UK), the Exclusive Listing Period is 5 days for owner-occupant buyers, non-profit organizations, and government entities. Bids received during these 5 days are considered as though they are received simultaneously, and are not opened until the 6th day of the Exclusive Listing Period.

When can investors submit bids? After the Exclusive Listing Period has expired, unsold properties enter the Extended Listing Period. These properties are available for all purchasers, including investors, on a daily basis until an acceptable bid is submitted. Bids are opened and reviewed the following business day.

What is the Lottery period? Certain property eligibilities allow Good Neighbor Next Door participants, HUD registered non-profit organizations, and government entities to bid on the property prior to becoming available to Owner Occupant bids. These properties, which are usually located in HUD designated revitalization areas, or are in areas determined to be uninsurable, are available in the Lottery period for 7 days prior to being listed in the Exclusive Listing Period.

How can I find a HUD Home? HUD Homes are featured on HUDHomestore.com (click here to search for available properties). They are also featured in the local MLS.

Can I submit more than one bid for different properties? If an Owner Occupant submits multiple bids for different properties, HUD will select and award the bid in the best interest of HUD. Investors may bid on and purchase multiple properties, provided they can obtain adequate financing or pay cash.

How can I finance the purchase of a HUD Home? The buyer may pay cash, obtain FHA financing from a HUD approved lender or secure conventional financing. Please contact a mortgage company of your choice for information on common mortgage programs, qualifying guidelines and how to obtain a mortgage appropriate for you.

What is FHA Financing? HUD Homes may always be purchased using cash, conventional, or other special financing. However, FHA offers financing options that are tailored to HUD Homes. There are many variables that are taken into consideration when the disposition of a property is created. The condition of the property as reflected in the FHA-approved appraisal and the Property Condition Report (PCR) weigh heavily in determining its insurability. Once the disposition of the property has been established, the property is initially listed at the as-is appraised value and will reflect the financing acronym that is appropriate. It is vital that real estate agents have a clear understanding of the FHA financing types, and the corresponding acronyms.

(IN) Insurable, FHA 203 (b) - Properties listed as Insurable (IN) qualify for FHA 203(b) financing. This disposition represents properties that do not have obvious Minimum Property Standard (MPS) repairs. Please note that properties with MPS repairs totaling $250 or less will be listed as IN and will not include those MPS repairs.

(IE) Insurable with Escrow, FHA 203(b) with Repair Escrow - Properties listed as Insurable with Escrow (IE) qualify for FHA 203(b) with Repair Escrow. This disposition represents properties that have MPS repairs which must be addressed post closing. The MPS repairs cannot total more than $5,000, except in cases where the 10% contingency causes the increase in escrow, and is the financial responsibility of the buyer. The repair escrow is never a credit to the buyer. The purchaser must finance the repair escrow with the lender writing the FHA loan. The lender holds the money for repairs in an escrow account until they are completed. FHA allows up to 90 days after closing for MPS repairs to be completed. Once the repairs have been completed for the property, the lender will inspect the contractor’s work and disburse the funds to the appropriate parties.The repair escrow only applies to FHA 203(b) financing. The repair escrow does not apply to financing outside of 203(b) or to cash purchases.

(UI) Uninsurable - Properties listed as Uninsurable (UI) do not qualify for FHA 203(b) financing. Typically, these properties have MPS repairs exceeding $5,000 or may not meet the guidelines for FHA financing for other reasons. Non-FHA financing and cash purchases are most often used for properties with the disposition of UI.

(UK) Uninsurable, 203(k) Eligible - Properties listed as Uninsurable – 203(k) Eligible (UK) also do not qualify for FHA 203(b) financing. However, these properties may qualify for FHA 203(k) financing. The 203(k) option is a rehabilitation loan for owner-occupants only. Most lenders offer both the standard FHA 203(k) and the 203(k) streamlined loan.

Please contact any mortgage company familiar with FHA guidelines for more information on the various FHA financing programs.

Will HUD pay for any closing costs and the selling agent’s commission? HUD will pay up to 3% of the purchase price in closing costs that are considered to be reasonable and customary in the jurisdiction where the property is located. Closing costs should be entered on Line 5 of the Sales Contract. HUD will pay the lesser of the amount requested on either Line 5, or the actual closing costs. Any funds remaining after the allowable closing costs have been paid will not be credited to the buyer at closing. Review the Forfeiture and Extension Policy addendum to the sales contract package for the list of closing costs that will be paid by HUD.

When can I get a home inspection done? All HUD Homes are sold "As Is." HUD does not make any repairs to the property. Therefore, it is important that the buyer do a visual inspection prior to submitting a bid. The buyer is also encouraged to have a professional home inspection performed with the utilities activated after the contract has been accepted and signed by HUD. The buyer has a 15 day period after contract acceptance to activate utilities and complete the home inspection, which must be coordinated with the Field Service Manager (FSM) assigned to the property.