I get asked a lot of questions, whether it be through email, DM, or FB chat… One question I get asked a lot about, especially after I posted this post, is “what exactly is a HUD home?”
To put it plainly, a HUD home is a 1-4 unit residential home that is owned by U.S. Department of Housing and Urban Development. More specifically, it means the Federal Housing and Urban Development paid off an FHA (government insured) loan that a homeowner defaulted on. HUD then lists the home for sale publicly to recover the losses on the foreclosure claim.
So here’s an example of a how a home winds up becoming a “HUD” home: I buy a house with an FHA loan. I am unable to pay my monthly mortgage payments so I have defaulted on my loan. Because the government backs FHA loans… they have the right to take my home since I can’t pay for it. Once they take the home back, they then list it for sale for other people to buy so that they can recoup some or most of the money they loaned me to buy the house.
Here’s the funny thing about HUD homes though… they usually go for less than market value! Why is this? The number one reason I’ve discovered is because they “let the house go” while they work through all their red tape and paperwork. For example, if a home has a leaky roof, they do nothing about it while they spend months getting the paperwork ready to sell it. So the leak just keeps making things worse and worse until the ceiling finally caves in! While this isn’t really a huge deal for contractors and investors, it can really deter “regular” home buyers from purchasing the home.
Things to know about HUD Homes:
Who is eligible to buy a HUD home?
If you can qualify for a loan you can purchase a HUD home! The best part is, HUD homes are always offered to owner occupants first. This means the typical home buyer won’t have to compete with investors for a specified time period immediately after being listed for sale, usually 14-16 days.
HUD does not offer financing or loans so you will have to secure financing prior to making an offer. The good news is there are FHA 203K loans available for those that qualify. This means you can borrow the money needed to purchase a home in need of repair AND the money needed for those repairs!
(If you’re interested in that option, my husband’s remodeling company can help you with the construction and remodeling part of the FHA 203k loan!)
How to buy a HUD home.
You must work with a HUD registered real estate broker. No one else will be able to bid on a HUD home on your behalf. Buying HUD homes is different than regular real estate transaction as all bids are put through online. You also need to be approved for financing before you can submit a bid and if you win, a $1,000 earnest money deposit is required.
I’m very familiar with HUD homes. This house was a home I flipped back in summer of 2012 and the home we currently own was a HUD home!
My most recent experience with purchasing a HUD home was not the greatest. I know I said in this post that I would never buy a HUD home again… But I’m kidding myself. You can find some reallllly amazing deals on HUD homes, especially if you plan to live in the home! Even if you want to invest, once the initial “homeowner only offer period” it’s free game and you can often find a deal that is too good to pass up.
So when asked if someone should buy a HUD home my answer is 100% yes! Just be warned that sometimes things don’t go smoothly (but that can happen with any real estate transaction, right?)
