The Housing & Urban Development (HUD) branch of the U.S. Government is a part of the Federal Housing Administration (FHA).
Before reading the information here, you might want to learn about FHA loans.When the owner of a home that's backed by FHA defaults on his mortgage, HUD takes over ownership of the property. HUD sells these properties through a website, which you can find here. There are several things you should know about buying HUD-owned homes.
Below is information from the government's HUD Buying Guide:
If you're buying a HUD Home, you're required to use a real estate agent. While purchasing a HUD Home may be easier than many private real estate transactions, there are still some requirements which must be met,??certain forms that must be used, and procedures that must be followed. But these requirements are clearly stated in advance, and the real estate agent will be there to help you through it all. There are no negotiations between buyer and seller when you buy a HUD Home. This can be a real advantage. There's no haggling about price — everything is spelled out in black and white. What's more, your offer is responded to promptly, and if it's accepted, closing on the home usually will occur within 30-60 days. Almost any home you look at will have room for improvement. But the more that needs to be done to a home, the less you're going to have to pay for it.
HUDHomes, because they're sold in as-is condition, can often be a great, affordable opportunity for the fixer-upper. Many are in fine neighborhoods and offer outstanding values. And while some HUD Homes do qualify as handyman specials, many are in very good condition.
HUD does not warrant the condition of its properties, but will give you the information it has about the condition of the property you're interested in. You can use this information in formulating your bid.
There's even a HUD loan program available called the 203(K), where buyers can borrow money to make repairs on some properties. You repay these funds later, as part of your mortgage. Just be aware that 203(K) funds aren't available for all houses in all areas. Ask the real estate agent you're working with about 203(K) availability in your area.
Once you've found the home of your dreams, it's time to make an offer to buy it. Before deciding how much to offer, HUD urges you to get a professional home inspection. It can also be helpful to find out how long the home has been on the market if it's been for sale awhile, the seller may be more willing to bargain.
Making an offer to buy a HUD Home is often much easier than the process of buying a home on the private market.Your bid will be submitted electronically through a computer, a touchtone telephone or by real estate broker. The person making the highest acceptable bid is generally awarded that HUD Home.Offers for HUD Homes can only be made through a licensed real estate broker. This way, HUD requirements are met and buyers get the help they need.
The initial listing price of each property is HUD's estimate of current fair market value and is based upon an appraisal conducted by an independent real estate appraiser. HUD may accept an offer that is less than the listing price, depending on market conditions and the length of time the property has been on the market. In some instances, buyers will offer more than the listing price if they believe the market conditions demand it or if the home is particularly appealing.
It is important for buyers to be aware of the property values established by HUD and submit offers knowingly. You will generally make your offer for a HUD Home during a designated Listing Period. With the commencement of the Initial Listing Period, bids may be submitted by all potential purchasers. However, priority will be given to owner-occupant purchasers for the first 10 calendar days as follows: All owner-occupant offers received during the first five days of this10 day period will be considered to have been received simultaneously. On the first business day following the expiration of the five day period, owner-occupant bids are reviewed, at which point the highest acceptable net owner-occupant will be accepted. Should there be no acceptable owner-occupant bids, owner-occupant bids will be reviewed on a daily basis for the remaining five days. At each such daily review, HUD will accept the highest acceptable net owner-occupant bid. At the conclusion of the 10-day owner-occupant priority period, should the property remain unsold, a review of all general public bids (e.g. investor) received during the 10 day period will be conducted. Earnest money. When you make an offer on a home, the seller will usually require an earnest money deposit as proof that your offer is serious. If the offer is accepted, your earnest money deposit will become part of your down payment or closing costs. If your offer is rejected, the broker will return your earnest money to you.
First of all, you should know that HUD itself does not provide financing. You obtain financing through a bank or mortgage lender. Since many HUD Homes are eligible for FHA-insured mortgage loans, this can make financing easier to obtain. However, you are not required to get an FHA loan to buy a HUD Home.
In this type of loan, the Federal Government insures the lender against loss in case the home buyer defaults on the loan. This program was set up so that Americans who can't afford the 10 percent to 20 percent down payment required by most lenders can still buy a home. Many HUD Homes can be bought with FHA-insured mortgages, which allow you to purchase the home with a low down payment. You do not have to be a first-time buyer in order to qualify for an FHA loan.
HUD BRINGS UP-FRONT COSTS DOWN. The costs of buying a home are more than just the price you agree to pay for it. Before you move in, you'll have to pay various charges, which we explain below. The good news is, with HUD Homes these costs may be lower than they are with other homes.
DOWN PAYMENT. Most people know that a down payment is a percentage of the price of the home that must be paid up front, in cash. The typical downpayment is three percent and family members may give a gift to make up the balance of the downpayment.
CLOSING COSTS. This term covers various fees your lender charges for providing your loan, and other expenses. Closing costs typically add up to about 3 percent or 4 percent of the price of your home, depending on where you purchase it. But when you buy a HUD Home, these costs may be picked up by HUD if this incentive is offered by HUD and if they are specifically requested, by dollar amount, in the bid offering. If you buy a HUD Home, HUD may pay many of your usual and customary closing expenses plus real estate sales commissions. Just remember that closing costs and sales commissions are deducted from the bid amount in making the decision as to which offer brings the greatest return to HUD. Since bidding is competitive, you may, in order to offer a more competitive bid, pay your own closing costs. This makes HUD's net return greater, making your bid more favorable and increasing the likelihood that HUD will accept your offer.