Missing! What is a HUD home?

Many people wonder what is a HUD Home and how a home becomes HUD owned. A “HUD Home” is defined by The Department of Housing and Urban Development (HUD) as “a 1 to 4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. The United States Department of Housing and Urban Development (HUD) oversees the Federal Housing Administration (FHA), which provides federal insurance on home mortgages. If a homeowner fails to make payments on an FHA loan, the mortgagee forecloses and files an insurance claim with HUD. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.” In other words, a homeowner bought a home using a FHA-insured loan, was unable to keep up with their mortgage payment, the bank who issued the mortgage foreclosed on the property (not HUD), and it was acquired by HUD. Through this process the property becomes owned by HUD. After the mortgagee conveys the property to HUD, the asset manager begins the process of managing and marketing the homes according to HUD guidelines.

Who can buy a HUD home?

HUD homes are offered to owner-occupants and after a period of time if the house does not sell to an owner-occupant, then the opportunity to bid on HUD homes opens up for investors.
Know the Difference between "Owner-Occupant" Vs. "Investor"
One of HUD's goals is to increase ownership of US citizen’s population. For this reason, HUD gives preferential treatment to owner-occupants over investors. Owner-occupants are given the preference to bid on any "insured" home before the bid opens for investors. A buyer may purchase as an owner-occupant once every two years. 

Can anyone make an offer in a HUD home?

Absolutely, any buyer who has been approved for the purchase of home loan is able to make an offer. All offers must be made online through a real estate agent registered with The Department of Housing And Urban Development. The process of making an offer on a HUD home is a little different than other REO sales and standard sales. However, in general the inspections and items needing attention remain the same such as home, plumbing, sewer lateral inspections, etc.
 Once you and your agent have identified a HUD home as the one you would like to purchase be sure to talk with your agent about your questions and expectations about the process as it is different than other transaction and may take longer than other transactions.

Understand the bidding process.

As stated before a HUD purchase is very different from a conventional purchase because HUD follows a "blind" bidding process. The bidding date is released by HUD, and each buyer submits their best offer-without the knowledge of any other bids. If HUD finds the highest offer acceptable, that offer is accepted. HUD retains the right to refuse all offers.

Anticipate repairs.

You are allowed to have a third-party home inspection before closing, but buyers cannot negotiate repairs based on the results of the inspection. HUD does not allow any repairs to be done before closing and will allow only escrow HUD paid repairs for owner occupants.  HUD properties usually have some repair issues. Owner occupants can use an FHA-203k loan this type of financing allows for any needed repairs to be added to the purchase price, however, investors would need to use a conventional financing. You are encouraged to go through the home thoroughly and read the property condition report posted on the HUD website before bidding on the property.

Continuously monitor the inventory

As foreclosure rates rise and fall, so does HUD's inventory, this is the basic principle of the law of supply & demand. When the foreclosed inventory is high more than likely the HUD inventory will be high also, on the other hand when the foreclosure inventory is low so will be the HUD inventory.

Make sure your REALTOR® and lender know the HUD buying process.

After your bid is accepted, the paperwork begins! HUD requires that you submit email addresses for all parties involved in the transaction. They will be sending the HUD sales contract for e-signatures. If the paperwork is incorrect, you are allowed one revision-which must be received within 48 hours. They are just as strict with a lender's closing documents-so make sure both your REALTOR® & lender are very familiar with the HUD process.

Act quickly and decisively.

Because HUD places very strict time constraints on bidding, you must be prepared to act quickly and decisively. You will typically have 10 days from the date HUD places the property on the market until the first bidding period ends-and often, the property will be purchased on the first round of bidding (which means it is most likely to go to an owner-occupant) unless the property has serious condition issues. Once the property is past the owner-occupant period, the second bidding period begins in which bids are opened daily and investors can now start bidding also. Make sure you exercise your due diligence and make your decision quickly - seldom do you get a second chance.
HUD homes can provide fantastic opportunities for a buyer or investor to get a great deal on a property. However, because the purchase process is quite different, make sure to do your research before attempting to buy your first HUD property. Since the process changes continually, it is important to get the most up-to-date information for your area before bidding.

Click here to search for HUD and other foreclosure properties.

HUD information for buyers
Thinking about buying a home?
Homeownership is a major decision and HUD provides information that can help you make the right choice.
https://www.hud.gov/faqs/homebuying

HUD Active Inventory
Click here for the currently active HUD inventory.


Agent Resources for California:
Below is a link to training, forms, procedures, and other important information that will be useful when representing a buyer in a HUD sale.
The links contain instructions on how to complete a HUD sales contract package and sample contract packages, as well as other forms, including FSM Utility Activation forms, and HUD Closing Agent information.
Click here for agent resources.