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~Tom & Sandra Woods

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   Buying a HUD Home

   What is a HUD Home?

A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.

   Who can buy a HUD Home?

Anyone who can qualify for a mortgage or who can pay cash may buy a HUD home. Owner occupants must live in the house as their primary residence for at least one year and may not purchase another HUD home as an Owner Occupant for two years. Buyers must use a broker or agent who is registered with HUD to place a bid on a property.

   How can I find a HUD home?

All available HUD Homes are listed on  Click HERE for info on how to use the site.

   How are HUD Homes priced?

The initial list price for all HUD homes is based on a current "AS IS" FHA appraisal.  If market conditions change over time before the home sells, HUD may choose to lower the list price below the appraised value.

   Will HUD pay for any repairs?

No.  All HUD Homes are sold AS IS.  HUD does not warrant the condition of its properties and will not pay for the correction of defects or repairs. Since the new owner will be responsible for making needed repairs, HUD strongly urges every potential homebuyer to get a professional inspection prior to submitting an offer to purchase.  One option to deal with repair issues is a 203K FHA loan - ask you lender or real estate professional for more info and/or click HERE.

   Will HUD pay for title insurance?

No.  Homebuyer's may purchase their own title insurance from the title company of their choice.

   Does HUD offer any financing options?

No.  Homebuyer's must pay cash or arrange their own financing with the lender of their choice.  To bid on a HUD Home, homebuyers must show proof of funds if paying cash (letter from bank), or be pre-approved for financing (pre-approval letter from their lender).

   What is FHA financing?

There are three main types of FHA Financing. More information may be obtained from any mortgage company familiar with FHA Guidelines for the various programs.

(1) 203(b) Regular FHA Loan - Listed as "IN"

  • If the Property does not have any mandatory repairs FHA will insure the Loan hence the classification of "IN"

(2) 203((b) - Repair Escrow - Listed as "IE"

  • When a property has less than $5000 in repairs to bring it up to Minimum Property Standards, FHA will insure the loan provided the repairs are completed by the Buyer or the Buyer's agent within 90 days from the date of Closing.
  • It is a cost to the Buyer that the Buyer can finance and add the amount to the mortgage.
  • The Lender monitors and keeps the funds in an escrow account for disbursement on completion of repairs to the Lender's satisfaction.

(3) 203(k) - Rehab Loan - Listed as "203K "

  • When the property has more than $5000 in Minimum Property Standards repairs to be done.
  • The Lender must obtain an Inspection report from an approved 203(k) consultant and a new appraisal.

   Can I increase my chances to be the winning bidder if I bid over the list price?

The winning bid will be the bid that yields the highest "NET" to HUD, so the more you bid, the better you chances.  However, HUD will not allow you to finance any amount over the initial list price (applicable to FHA financing).  If your winning bid is over the initial list price, you will have to pay the overage at closing.

   What if my offer price is higher than the appraised value?

FHA guidelines will limit the underwriter to insuring the loan for the lower of two values; the offer price or the appraised value (displayed as the As-Is Value). If your offer price is higher than the appraised value, the FHA underwriter will require that your buyer(s) cover the overbid amount with a cash deposit. The buyer(s) will not be allowed to build the overbid amount into an FHA loan.

HUDís mortgagee letter 2000-27 will require that the FHA UW use the appraisal obtained by HUD. This mortgagee letter instructs the FHA Underwriter NOT to obtain a new appraisal; nor can the FHA Underwriter request that new comps be pulled and the HUD appraisal updated.

If your offer price is higher than the appraised value and tentative acceptance is extended to you, the options available to you are:

1. Proceed with contract execution. HUD will require that the selling broker verify that the cash reserves are available to cover the overbid amount before we execute the contract.

2. Use cash or conventional financing. All of the guidelines outlined above apply to FHA financing only. A conventional lender will have their own set of guidelines not governed by HUD.

3. Cancel prior to contract execution. If there is an acceptable backup, we will award tentative acceptance to the backup offer. If there are no acceptable backup offers, the property will be relisted

   How do I submit a bid on a HUD Home?

You cannot bid on a HUD Home yourself.  Bids must be submitted by a HUD-registered selling broker/agent.  If you find a HUD Home that you are interested in, you can contact the listing broker to schedule a showing appointment and submit a bid for you, or you can use any other HUD-registered broker/agent of your choice.  Click HERE to find a HUD-registered selling broker in your area.

   Where can I learn more about HUD Homes?

Click HERE to visit HUD's website

Click HERE for HUD Home Store FAQs

Click HERE if you are a Realtor with questions regarding the bid process


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