Click here to search for HUD and other foreclosure properties. A HUD property is foreclosed home that was financed with an FHA government-guaranteed loan. HUD homes can offer many buyers the chance to purchase their home with built-in equity and allow investors some fantastic deals. When the foreclosure rate is particularly high, as it was in 2008, HUD's inventory swells, and there are deals to be made. The process of buying a HUD is very different from traditional purchase practices, so make sure you are working with an agent who is familiar with the process.
All HUD Homes Aren't Great Deals
Many buyers mistakenly assume that, if the US Department of HUD is selling, it must be a great deal. This couldn't be further from the truth. Many REALTORS® market HUD homes to drum up business, and this can create a glut of HUD buyers. When the HUD inventory is low, buyers will often bid HUD properties up to, or above the fair market value. It is important to look at every HUD deal on its own merit and make your decision based on a market analysis of that home.
Understand the Bidding Process
HUD purchases are very different from conventional deals because they follow a "blind" bidding process. The bidding date is released by HUD, and each buyer submits their best offer-without the knowledge of any other bids. As long as HUD finds the highest offer acceptable, that offer is accepted. HUD retains the right to refuse all offers.
Know the Difference Between "Owner-Occupant" & "Investor"
One of HUD's goals is to increase the number of US citizens who own homes. For this reason, HUD gives preferential treatment to owner-occupants over investors. Owner-occupants have the first 30 days to bid on any "insured" home before it is released to investors. A buyer may purchase as an owner-occupant once every two years. Make sure you bid honestly - otherwise it is illegal and can result in hefty fines. In recent years, demand for HUD homes in the greater Austin area has been strong enough that investors are only able to buy homes that have serious repair issues.
You are allowed to have a third party home inspection before closing, but buyers cannot negotiate repairs based on the results of the inspection. HUD does not allow any repairs to be done before closing and will only escrow HUD paid repairs for owner occupants. HUD properties usually have some repair issues. Owner occupants can use an FHA-203k loan (purchase + repair cost loan) but investors would need to use a conventional Purchase Plus type loan which are not easy to find. Backing out of HUD deals & getting your earnest money back is trickier than with conventional purchases, so you may run the risk of losing your earnest money. Make sure to go through the home thoroughly and read the property condition report posted on the HUD website before bidding on the property.
Continuously Monitor the Inventory
As foreclosure rates rise and fall, so does HUD's inventory. The law of supply & demand definitely applies here. When the inventory is high, your chances of getting a great deal are higher than when inventory is low. Follow the asking price & sales price of HUD homes-if they are selling for over asking price, it might not be the time to buy.
Make Sure Your REALTOR® & Lender Know the Process
After your bid is accepted, the paperwork begins! HUD requires that you submit original signed (in blue ink) paperwork to the HUD agent's office within 48 hours of the bid's acceptance. If the paperwork is incorrect, you are allowed one revision-which must be received within 48 hours. They are just as strict with a lender's closing documents-so make sure both your REALTOR® & lender are very familiar with the HUD process.
Act Quickly & Decisively
Because HUD places very strict time constraints on bidding, you must be prepared to act quickly and decisively. You will typically have 10 days from the date HUD places the property on the market until the first bidding period ends-and more often than not, the property will be purchased on the first round of bidding (which means it is most likely to go to an owner-occupant) unless the property has serious condition issues. Once the property is past the owner-occupant period, the second bidding period begins in which bids are opened daily. Make sure you exercise your due diligence and make your decision quickly - seldom do you get a second chance.
HUD homes can provide a fantastic opportunity for a buyer or investor to get a great deal on a property. However, because the purchase process is quite different, make sure to do your research before attempting to buy your first HUD property. Since the process changes continually, it is important to get the most up-to-date information for your area before bidding.