How to Buy HUD Houses
HUD homes are residential properties owned and sold by the Department of Housing and Urban Development (HUD). When a house with a Federal Housing Administration (FHA) loan goes into foreclosure, the FHA turns the home over to HUD. Then, the house is appraised, priced at fair market value, and placed for sale.
HUD homes are first offered to owner-occupant buyers (people who want to buy the home as their primary residence). If the house remains unsold after a period of time, other buyers (like investors) can make a bid for the property. Purchasing a HUD home is a reasonable option for buyers who cannot afford a house otherwise.
- Difficulty:
- Moderate
Instructions
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1
Secure a mortgage to pay for a HUD home. To purchase a HUD home, you must demonstrate a conditional loan commitment from a qualified lender. Make an appointment with a HUD-approved financial lender and secure pre-approval to buy a home. You must have pre-approval before you can make a bid on a HUD home.
If you decide to pay for a HUD house with cash, you must show sufficient evidence (like a bank statement or a letter signed by your bank) that you have enough money to buy the house.
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2
Hire a HUD-approved real estate agent. HUD does not work directly with home buyers---you must purchase one of their houses through a real estate agent. Locate a HUD-approved real estate office in your area and work with one of their agents to find the right house for you.
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3
Find HUD homes in your area. Search for HUD houses by visiting HUD's official website (see Resources). This site provides a link to HUD listings in every state. Once you have found a few homes you are interested in purchasing, ask your agent to give you a tour of the properties to see if you would like to make a bid.
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4
Make a bid on a HUD home. Once you have found a property you want to purchase, ask your agent to make a bid on the house during the offer period. Discuss with your agent on how high you want to bid. If possible, try to make a higher offer since HUD usually takes the highest bidder from the offer period.
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5
Get a home inspection. Once your bid is accepted, hire a home inspector to inspect the house. HUD homes are sold as-is, meaning you will be responsible for all necessary repairs.
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Tips & Warnings
Consider applying for an FHA loan to finance your HUD home. FHA loans have flexible loan requirements and ask for less than 5% down payment. To qualify for a basic FHA loan, you must have two years of steady employment with the same employer, pay your credit cards on time, and maintain good credit for at least two years since a bankruptcy or at least three years since a foreclosure. HUD offers special discounts to law enforcement officers and teachers, called the Good Neighbor Next Door initiative. (See Resources.) HUD will pay the commission for your real estate agent (up to 6% for the home sale). Make sure your agent includes the correct stipulation in the contract to guarantee she will get paid by HUD. If you are an investor, you may make a bid on a HUD home if no owner-occupant purchases the house during the first offer period. If you belong to a HUD-approved nonprofit organization or government agency, you can buy a HUD home for $1 if a foreclosure is not sold in six months. The home has to be used to create housing for needy families or to benefit the surrounding neighborhood.
