Home Buying Tips: How to Buy a HUD Property
1. What are HUD Properties?
HUD properties consist of foreclosed homes. However, not all homes are classified as HUD. If a homebuyer’s property is insured by HUD, and they are unable to maintain regular payments, the mortgage lender has the right to foreclose on the property. In this event, HUD pays the lender and takes possession of the home. To regain their money, HUD will sell the property at market value.
For the most part, HUD simply wants to recoup their loss. Because homes are sold “as is” at market value, it is possible to obtain a HUD property below the asking price for most homes in a neighborhood. Nonetheless, rarely is a HUD home sold for a ridiculously low price.
2. Who Qualifies for a HUD Home?
There are two types of HUD properties. These include owner occupant homes and homes open to all bidders. When a property is initially listed, HUD will only accept bids from individuals who plan to reside in the property. Thus, investors are unable to bid. However, if there are no owner occupant bidders after a specific bid period, the property becomes open to all bidders.
Anyone can buy a HUD home. Because homes are sold at market value, the majority of buyers are low to moderate income families. However, there are no income limitations. If you meet the requirements for obtaining a mortgage loan, you are eligible to buy a HUD home.
3. What Does “As Is” Mean?
When buying a HUD property, the homes are sold in “as is” condition. Hence, previous owners or HUD is not responsible for damages or cosmetic repairs. When bidding on a HUD property, potential buyers should keep in mind that some home will need extensive repairs. Therefore, it is important to have homes inspected.
In some instances, repairs are simple. This may consist of buying new carpet, painting, and fixing other minor damages. On the other hand, some HUD homes have mold damage, plumbing problems, etc. Because homes are sold at a bargain, buyers should anticipate repairs.
Buyers can finance home repairs in many different ways. There are mortgage loan programs which approve homebuyers for loans three and seven percent above the asking price. The additional money can be used for any purpose, including home improvements. Furthermore, HUD also has incentive programs and allowances to assist buyers with enhancing a property.
4. Buying a HUD Home
If interested in buying a HUD home, contact a local realtor with experience handling HUD properties. Because HUD homes are rarely listed among homes for sale, using a realtor is a quick and easy way to locate properties. Furthermore, homebuyers may visit HUD’s official website, and search for a listing of HUD homes in their city or state. Listings include all the pertinent information, such as asking price, type of ownership allowed, damages, contacting agent, etc.
When bidding on a HUD home, you have the option of submitting a bid for the asking amount, or for a lower amount. However, HUD usually accepts the highest bidder. With this said, avoid bidding an unreasonably low price.
5. Financing a HUD Property
When a buyer’s bid is accepted, they usually have 30 to 60 days to arrange financing. If hoping for a quick closing, secure financing before bidding on a property. HUD does not finance properties. Hence, you will need to contact a mortgage lender or broker to discuss finance options.
Lenders must be HUD approved. Prior to completing a loan application, inquire as to whether a particular lender is permitted to write loans for HUD homes. While arranging financing, buyers are required to submit an earnest money deposit. This signifies your seriousness about purchasing the property. If buyers are unable to secure a mortgage loan, they lose their deposit and the property is re-listed.
