What is a HUD Home and How Do I Buy One?

If you’ve been searching for a home, you may come across the term “HUD Home” in your quest.  Although few and far between in this real estate market, there are some available around town.  Since purchasing a HUD Home may be new to you, we’ve tried to answer all your possible questions below.

Question: What is HUD and what is a “HUD Home”?
Answer: HUD stands for the US Department of Housing and Urban Development. A “HUD home” is a home owned by HUD. When a homeowner with a HUD insured mortgage defaults on the payments, the lender forecloses on the home; HUD pays the lender what is owed and takes ownership of the home. HUD must then sell the home at market value as quickly as possible.

Question: Who can buy a HUD home?
Answer: Anyone! If you have cash or qualify for a mortgage, you can buy a HUD home.

Question: Are HUD Homes only for those on low-incomes?
Answer: No, anyone can submit a bid on a HUD home. HUD homes vary in price, but most are affordable for low- and moderate-income Americans.

Question: I heard that I can get a HUD Home for a dollar, is that true?
Answer: No. HUD sells homes at market value – that means that the price is set based on the price of similar homes sold in the area.

Question: If the HUD Home needs repairs, can I ask for a repair or contingency?
Answer: No. HUD Homes are sold “as-is,” without warranty or contingency. But even if a HUD Home needs repairs – not all of them do- it can be a real bargain! If the home does need work, the price will reflect it. HUD homes are sold at market value for the condition they are in.

And on many HUD sales, the buyer can ask HUD to pay a portion or all of the financing and closing costs. DO get the home professionally inspected before you make an offer so you will know what repairs you may have to make BEFORE you submit your bid.

Question: How can I buy a HUD home?
Answer: Your real estate agent submits your bid for you. Normally, HUD Homes are sold in an “Offer Period.” At the end of the Offer Period, all offers are opened and the highest reasonable bid is accepted. If the home isn’t sold in the initial Offer Period, you can submit a bid until the home is sold. Bids can be submitted any day of the week, including weekends and holidays. They will be opened the next business day.

If your bid is acceptable to HUD, your real estate agent will be notified, usually within 48 hours, and you’ll need to submit a deposit of earnest money.

Question: My bid is accepted, now what happens?
Answer: Your real estate agent will help you through the paperwork process. You’ll be given a settlement date, normally within 30-60 days, by which you need to arrange financing and close the sale, or forfeit your earnest money deposit, or pay for an extension of your sales contract.

When you buy a HUD Home, the selling agent’s commission can be paid by HUD if you make this a condition of your offer. The listing agent’s commission is always paid by HUD. HUD will pay a total sales commission of up to 6%.

Question: Can I get a loan to buy a HUD Home?
Answer: HUD doesn’t make loans directly to buyers. But there are a number of mortgage programs that can help you buy a home. Contact a HUD approved lender, who will take you through the steps and actually make the loan.

Question: Can I buy a HUD Home as an investment?
Answer: Yes. HUD Homes are offered on a priority basis to owner occupant purchasers (people who are buying the home as a primary residence). Following the priority period, unsold properties are then available to all buyers, including investors.