If you are looking for a home for personal use or for investment one of the options you have is to purchase a home from the Federal Government through the Department of Housing and Urban Development. Now just because the office says Urban Development it doesn’t mean that you will be selecting from homes in a large city. There are properties available across the country in different locations that have many different options that can meet your needs.
The best thing about buying a HUD home is that you have a possibility of getting a property for under market value however don’t expect it to be hugely undervalued because the Government has to cover its costs and make as much as it can for the Tax Payer. HUD Homes are Properties that were sold with government mortgage insurance and that insurance has paid off the bank for the owner that defaulted on the loan. That means the Government now owns the home and for the system to remain working they need to get back a good portion of what they paid out. So, don’t expect to find million dollar beach front homes for a dollar.
How Are HUD Homes Sold To The Public?
Every home goes through a bidding process. For the first 5 days and sometimes more the owner of the property has the ability to bid on the home. If they can come up with an acceptable amount the occupant of the home will be given preference to get their home back. After that for about the next 10 days there is a opportunity for bidders that intend to live in the home to bid on the property. The Government wants the home to go to someone who will also live in it full time. Finally after about 15 days from the initial listing the home will be offered to investors.
To offer a bid on a property you must go through a buyer’s agent that is qualified and registered to submit bids. If your agent isn’t registered this process can take up to a month but it is free. This could mean that you lose the home waiting for registration so normally your agent will pass you off to a registered agent to complete the process. Anyone who is registered as an agent can’t bid on HUD homes anyplace and there are also restrictions on staff and family members of the agent buying homes.
The bidding process is sealed so you won’t have an understanding of what others are bidding or how many other people or businesses are submitting bids on the property.
How Is Buying A HUD Home Different Than Buying A Regular Home?
As we have already seen the properties must be sold through registered agents so every home is going to be open for public bidding. Sometimes in Private transactions homes are sold without listing to a MLS system because of whatever reason the seller might have such as not attracting a lot of unwelcome foot traffic from people that just want to get a peek in the home and have no intention of buying.
Home disclosures are not the same and the information you will get about the property may not be exact. Inspections might be done with the utilities off so a HVAC System listed as OK might have only gone through a visual check without actual testing for operation.
This is very important to note and you will have to get your own inspection because the earnest money that you must submit will not be refundable if they have disclosed information such as a visual but not functional test but then the HVAC System does not work and your bank won’t let you buy the home.
Nothing on the property will be fixed. This is another important thing because some banks won’t let you buy a home with a large amount of repairs needed. FHA Loans only allow about $5,000 in repairs and others do the same. There are some Rehabilitation Loans that you can apply for and your agent will explain them.
Lower than listed offers can be accepted but don’t expect the bid to be accepted if it is more than about 10% lower than the listing price. If you do offer a lower price and it is not accepted then HUD will normally lower the listing price after 60 days and your offer might be within range so you have to tell your agent to list your bid as Hold For Future and if the price drops you will be contacted.
Final Note
Buying a HUD Home is not a simple process but it is a regularized process. That means once you understand how to bid on the first property you are interested in you will understand how every property is processed whether it is in your area or across the country.
Deadlines can be difficult there is a 48hr deadline from the time your bid is accepted until you deliver your earnest money and pre qualified loan letter. This means it might need to be delivered by overnight carrier and only certified funds and no personal checks are allowed.
If you are interested in this type of home then you can search for them online and also find a realtor in your area that is a registered agent that can help you understand the process.