When a home purchased with a Federal Housing Administration loan is foreclosed, ownership reverts to the U.S. Department of Housing and Urban Development. HUD sells the homes to the public, nonprofit organizations and government agencies. All homes are sold as-is, with conditions varying among homes. Some properties are available in excellent condition, while others may require extensive repairs. Anyone who has the financial ability to buy a home is eligible to buy a HUD home. All HUD homes are sold through a bidding process.
Locating a Home
You can access a current list of HUD homes available for sale by visiting the HUD Homestore website. The user-friendly site allows you to browse the inventory of available properties throughout the country. You can narrow your search results by location, price or features. Click on the property case to view details about the home and additional photos. Pay close attention to the bidder eligibility and deadline for bid submission. At the beginning of the bidding process, owner-occupants have priority. If you are not planning on occupying the home, you will need to wait until the home enters the "extended" phase of bidding.
Finding a Broker
Although anyone can view HUD homes, only a HUD-approved broker can submit offers. You can either choose a broker to represent you, or go through the listing broker assigned to the home. The HUD broker is responsible for showing you the property, preparing your contract and submitting your offer through the electronic bidding system. HUD sets a bid amount for each home, but you can bid more or less than the amount. You can search for a broker in your area on the Homestore website.
Qualifying for Financing
HUD homes can be purchase with cash or financed using a conventional loan or FHA loan. If you need financing, the broker will require a pre-qualification or pre-approval letter from a lender before submitting your bid. HUD hires a third-party inspector to examine each home's condition before setting a price. FHA financing eligibility is indicated on the listing. If a home is FHA eligible, you will see the abbreviation for insurable, "IN." Homes that require repairs estimated at less than $5,000 are eligible, but will require your lender to set up an escrow repair account at closing. Homes also may indicate eligibility for the FHA 203k rehabilitation loan, which allows you to finance repair costs.
Submitting a Bid
Once you find a home and draw up a contract, the lender will ask for an earnest money deposit. The requirements range from $100 to $1,000, depending on the price and financing. If you back out of the deal after acceptance, HUD may keep your deposit. HUD uses a sealed bidding process during the first stage of bidding. All bid offers are received and opened simultaneously on the bid open date. If a bid is not accepted during the initial bidding phase, bids are reviewed as they are received. Your broker can submit your bid at any time or day, but HUD has specific deadlines for review. Bids must be completed and confirmed no later than 11:59 p.m. If the bid is submitted on a weekend or holiday, it is not reviewed until the following business day. HUD will accept the highest net bid. You can check the status of your bid by visiting the Homestore website.
Preparing for the Closing
If your bid is accepted, the broker must deliver your signed contract and deposit to the home's asset manager within two business days. If the winning bidder declines, HUD offers the home to the second highest bidder. After placing a winning bid, you have 15 days to have the home inspected. Once your contract is received, you are given a settlement date. HUD closings are generally set for 45 days. If you need financing, you must submit the contract to your lender for approval. If you are unable to close on the property within the specified period of time, you lose your deposit or may need to pay fees to extend the closing date.