How to Buy a HUD Home?

I’m about to close on my first HUD transaction in Everett, WA. After HUD revamped the way they sell homes at the end of the last year, it became much easier to find that great deal on your home purchase.

1. What are HUD Homes?

HUD homes are owned by the US Department of Housing and Urban Development. Why would the federal government be in business of owning and selling homes? In most cases, they got them after foreclosure.

If a home has an FHA secured loan, after foreclosure the lender submits a claim to recover their losses and conveys the ownership of the home to HUD. Then, HUD hires an asset management company to sell the home and recover some of their money.

2. How are HUD Homes Sold?

HUD hires an FHA appraiser to establish the value of the home. Then, they list a home with an agent, who puts it on the MLS. The sales process, however, is a little different from most MLS listed properties.

It’s done in a form of a closed auction. During the initial period (usually 10 days), only owner-occupant buyers may submit offers with their bids on the home. At the end of the initial period, HUD pulls all offers. If the highest net offer looks OK to HUD, the home is sold.

However, if the highest bid by an owner-occupant buyer was deemed to be too low, HUD will open the bidding to non-profit organization. Finally, after about 30 days on the market, the home may open to investors as well. By that time, the offers are pulled daily.

3. Can You Get a Loan on a HUD home?

Yes, on most homes. By the time the home is on the market, there has already been completed an FHA inspection/appraisal. The report will state whether the home meets the minimum FHA criteria to qualify for a loan. (Look for “Insured” label on HUD listings)

If only minimum repairs are needed (up to $5,000), then you may obtain a loan but part of the money will be placed in escrow to be later paid for the repairs. (Labeled “Insured Escrow“).

If more than $5,000 in repairs is needed, then the home may qualify for an FHA rehab loan. (“203K eligible“)

In some cases, a home may be in such a bad condition that it won’t qualify for either of the above options.

4. Can I have an Inspection on a HUD home?

Since the home is listed on the MLS, you can view the home with your real estate agent before submitting an offer. You can also have a home inspection after your bid is accepted. Keep in mind, though, that HUD won’t do any repairs.

5. How to search for HUD homes?

The place it start is www.HUDHomeStore.com. Choose “WA” State, and browse for homes. Buyers can also register to save their searches, and subscribe for alerts. (Look for “register”, then “public” in the top right corner).

6. How to Submit a Bid on a HUD home?

While, anyone can browse HUD homes on their website, in order to submit an offer, you will need to get help of a HUD approved real estate broker.