Buying HUD Homes

When the Department of Housing and Urban Development, or simply HUD, was created back in 1968, the focus was to help manage federally-subsidized housing and the development of new communities in urban areas.  Today, HUD has taken on a lot more responsibility in the housing market, and that has increased consumer interest in buying HUD homes.

What is a HUD Home?

To understand where HUD gets their homes from, you need to understand a little bit more about HUD's role in the housing market.  For example, there is a branch of HUD, the Federal Housing Administration or FHA, that provides the housing market with mortgage insurance.

One of the objectives of HUD is to help individuals own homes; they can do this by offering FHA-backed loans to qualified applicants.  Since many of the individuals seeking assistance from HUD are first time home buyers or "high" risk mortgage applicants, gaining FHA insurance on the loan allows lenders to offer reduced rates to these same applicants.  Without the risk of default on the loan, the lender can pass those savings on to the mortgage applicant.

When an applicant cannot make their mortgage payments, and the home goes into foreclosure, the FHA pays the lender's claim on the property.  Essentially, they pay off the remaining balance, or principal, on the mortgage plus any expenses incurred by the lender.  When this happens, ownership of the home is transferred to HUD.  This is where HUD obtains their homes.

HUD Home Costs

Once HUD takes ownership of a home, they turn it over to their Property Disposition Department.  This group makes sure the property is protected from vandalism or other types of damage, and then determines if the property is going to be sold through HUD itself or a real estate broker.

These homes are then professionally appraised, whereby the price of the home is adjusted to reflect the local housing market and the cost of any repairs needed.  Generally, HUD homes are in the low-to-moderate price range for a given area.

Repairs and Financing of HUD Homes

HUD does not make repairs to homes; they are sold "as-is," and without warranty.  New owners are responsible for making any repairs or improvements they deem necessary.  These properties are also sold on a "cash" basis.  Don't expect to automatically get financing through HUD following a property sale; you need to work with your lender to have financing available if you are successful in bidding on a home.

If you make the winning bid, and you are not able to secure the financing and close on the home, then you may lose any and all of the deposit money you submitted with your bid.

HUD Home Buying Process

If you're interested in buying a HUD home, then you need to work through a local real estate agent or an authorized HUD broker.  HUD will send to you a list of authorized agents in your area.  These agents get a list of new HUD homes available for sale each week.

Once you've secured a list of available properties, you need to follow the same home buying process we've recommended before.  Our series for first time home buyers is a great start to understanding what you need to look for in a new home, and some of the things you will need to do, such as having the home inspected.

Bidding on HUD Homes

If you find a home that you like, then you need to submit a bid through your HUD agent.  Normally, HUD homes are sold during an Offer Period, after which bids are opened and the highest "reasonable" bid is accepted.  If you are the successful bidder, then you will be notified through your HUD agent.

That agent will help you to complete all of the required paperwork.  You will then get a settlement date, which is normally 30 to 60 days in the future.  During that time, you need to finalize your financing arrangements, and close on the home.  If you do not successfully close in this timeframe, then you may lose any or all of your deposit.

Homes as Investments

HUD's "dream" is that every American family owns their home.  This means they are very interested in selling these homes to individuals and families that plan to live in the home.  Homes sold during the Offer Period first go to buyers that plan to use the home as their primary residence for at least 12 months.  Homes not sold after this time are then offered to all buyers, including those interested in purchasing the home for investment purposes.

Finally, keep in mind that HUD also offers special home buying programs for teachers and law enforcement officers that are willing to live in the neighborhoods in which they work.

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