How to Invest in HUD Homes

The Department of Housing and Urban Development (HUD) buys foreclosed homes that were insured by the Federal Housing Administration. HUD then sells these homes in an attempt to recoup the losses incurred by the foreclosure. Those interested in investing in these homes can bid to buy them. HUD has a specific system to bid on and invest in HUD homes. Investors need to learn how to find the homes and make bids. They can then invest in HUD homes and profit from them by renting or reselling their new properties.

Instructions

1. Find a real estate agent who is registered with HUD. Buyers of HUD properties must use a registered agent to buy HUD homes. Most agents are registered with HUD. Use RealEstateAgent.com or Connect2Agent.com to perform nationwide searches for an agent.

2. Access the listings of HUD properties for sale. HUD signs contracts with management companies to sell the properties. The HUD website has a list of links by state (See References). Click on the states and search for homes. Note that some listings are available only to those who wish to buy the home as a main residence. Compile a list of properties that you would like to purchase. Consider the prices of comparable homes in that area when deciding on a bid amount. Note whether the buyer can get a loan to buy the property.

3. Negotiate for a home loan if you have insufficient funds or do not wish to pay in cash. Investors may pay in cash, but those who buy a home that is eligible for financing can seek a home loan. Look for a lender by talking to banks, credit unions, mortgage companies and mortgage brokers. Give lenders the details for any homes you seek to mortgage.

4. Direct the the agent to place an offer for the homes you would like to purchase. The agent also prepares a sales contract and accepts earnest money. HUD will return the earnest money if the bid does not result in a sale. However, keep in mind that the earnest money is not refundable if the bid results in a sale (See Resources).

5. Pay for a professional home inspector to perform an inspection before final closing of the purchase. Conducting the inspection may reveal any defects or repairs that are necessary after purchase. HUD does not pay for repairs.

6. Complete the purchase of the home through a closing agent (see Resources). The buyer pays the balance in cash at the closing or delivers the loan and mortgage documents. Ask the agent who placed the bid about using a closing agent.

7. Make any necessary repairs before renting out or reselling the property. Many who invest in HUD homes make a profit by increasing the value of the home through repairs. They can then sell the property at a higher price than their own purchase price.

Tips & Warnings

• Try to qualify for the Neighbor Next Door initiatives (See Resources). HUD has special initiatives for teachers, police officers and other special categories of buyers.

• Do not attempt to buy a home as an investor by pretending to be a buyer who will live in the home. HUD may cancel purchases and loans in this kind of fraudulent situation.

References

• Department of Housing and Urban Development: About Buying HUD Homes
• Department of Housing and Urban Development: HUD Homes
• Department of Housing and Urban Development: Looking for the Best Mortgage

Resources

• Department of Housing and Urban Development: Neighbor Next Door Sales Programs
• TheRealEstateLibrary: How to Buy HUD--FHA Properties--Facts About The Process
• HUDHomeSource: FAQ--Home Buyers