For the past couple of years, my team has been teaching a class, “Successfully Buying HUD Homes” at the Collin County Community College.  This class is designed for the home buyer and/or real estate investor, looking to purchase a property and get a great bargain.  Participants learn the process that must be used to purchase HUD homes.  An overview of the HUD sales contract, the bid process, bid results and statistics is also reviewed.  During these classes I am asked many questions concerning HUD properties.  I would like to take some time now to share these with you.

Where do HUD Homes come from?

When someone with a HUD insured mortgage can’t make the payments, the lender forecloses on the home.  HUD pays the lender the balance of the loan, and then HUD takes ownership of the home.  HUD then sells the home at a discount as quickly as possible.

What are the advantages and disadvantages of buying a HUD home?

Some of the advantages are the fact that the government guarantees the title is clean.  You also can actually visit the property and see what you are buying, unlike an auction.

A few disadvantages are that you are buying the home as it was left by the previous owners and no maintenance has been done.  In addition, there is no seller’s disclosure to tell you what is wrong with the property.

What kind of condition are HUD Homes in?

They vary from excellent condition with no repairs required, to terrible condition needing foundation repairs, fixtures and appliances replaced because they could be missing,.  However, the list price is supposed to reflect the fact that the buyer will have to spend some money on repairs. 

HUD Homes are sold “As-Is”, “Where Is”, without warranty.  HUD will not pay for any repairs.

How do you buy a HUD home and can anyone buy HUD Homes?

To buy a HUD home you must place a bid, which requires an agent that is with a registered HUD broker.  HUD’s contracts must be used to submit the bid and you must meet and follow HUD’s criteria and timeframes to close.  A $1,000. cashiers check and prequalification letter is required at the time you place your bid.  Once you have won a bid you have 24 Hours to have these items and all paperwork turned into the HUD office.  In the event that the HUD office does not have everything required in 24 hours, the home goes back up for bid.

You can buy a HUD  home if you are able to pay cash or be qualified for a loan, and have $1,000 deposit in the form of a cashier check.

Do HUD Homes sell for market value?

Yes & No - HUD lists the home at market value.  However, depending on which stage of the selling cycle you purchase the home, will determine if it sells for market value or not.  A broker opinion is completed on each property and depending on the condition of the property.  Usually the property is still priced a little under value.  However, the asking price is not always what the property sells for, depending on who is buying the home.  For example if a person is buying as an owner occupant, they may pay more than the asking price for the home if it’s worth that price to them.   An investor who only gets to bid after the timeframe allowed for owner occupants would usually bid less for the property that a owner occupant.

How do I find and bid on a HUD Home?

You need to get with a realtor that is under a certified HUD broker.  Ask them to take you to view the properties you are interested in and determine the bid cycle you are eligible to bid in.  Once you decide on a property, your realtor will electronically submit your bid.

HUD Homes are sold in an “Offer Period”, all offers are opened and the highest reasonable bid is accepted.  If the home isn't sold in the initial Offer Period, you can submit a bid until the home is sold. Bids can be submitted any day of the week, including weekends and holidays. They will be opened the next business day. If your bid is acceptable to HUD, your real estate agent will be notified, usually within 48 hours.

Where do I get a list of HUD Homes that are available?

From the Southwest Alliance web site at www.southwestalliance.com .  You can also register and setup criteria for areas and the prices of homes that you are looking for and have ones that meet your criteria automatically e-mailed to you.

Can you view HUD Homes prior to purchasing & do you need an agent?

Yes, you can view the homes with your real estate agent.  Your real estate agent must submit your bid for you.  Remember, your real estate agent must be under a certified HUD broker.

Once I win a bid what is the process to close?

Your Real Estate agent will help you through the process.  The signed contract, deposit check, and pre-qualification letter must be delivered to HUD within 48 hours after your offer is accepted.  You will be given a settlement date, usually about 45 days, by which you must obtain your financing and actually close the sale.  If you do not close within the required time-frame, you forfeit your earnest money deposit, or pay for an extension of your sales contract.

Can a HUD Home be financed or does it have to be paid for by cash?

Yes a HUD home can be financed.  However, make sure you are pre-approved for a loan prior to placing a bid.  There are a few things you will want to verify before using a particular lender for a HUD property; Verify they have done HUD loans in the past and are VERY familiar with the process required by HUD.  It’s HUD’s way or the Highway, and you could loose the house and your deposit if the loan documents are not to the title company within the allowed number of days.

What happens if I can’t get my financing completed within the 45 days to close?

You will loose the home and it will go back up for bid.  You will also forfeit your deposit money.

Bottom line is look for agents that are HUD trained and have sold many HUD homes over the years. You can make your HUD home purchase a much less stressful buying experience by using people that know the HUD process as well..