Foreclosure: What to Know When Purchasing a HUD Home
Buying a Foreclosed HUD Home: A Step-by-Step Guide to a Great Opportunity.
Purchasing a home is one of the most significant investments you’ll make, and if you’re looking for a great opportunity, buying a foreclosed HUD home can be an excellent choice.
There are NOT a lot of Foreclosed HUD owned homes, so when you see one of interest in your area, you should DEFINITELY take a look at it.
Below is a comprehensive guide of what to know and expect when offering on this type of home.
What Is a HUD Home?
A HUD home is a property that was originally financed with an FHA-insured loan and has since been foreclosed upon due to the homeowner’s inability to make payments. After foreclosure, the ownership of the property transfers to HUD, which then sells the home to recover the outstanding loan balance.
Benefits of Buying a HUD Home
- Potential Cost Savings
Depending on the specifics of the home, a HUD home may be sold at a lower than market price, offering great value for buyers who are willing to invest in a property that may need some repairs.- This can be a fantastic opportunity if you’re handy around the house.
- Less Competition from Investors
For the first 30 days that a HUD home is listed, only owner-occupant buyers (those planning to live in the home) can make offers. This exclusive bidding period helps reduce competition from investors, giving regular homebuyers a better chance at securing the property. - Opportunity to Offer without offending the seller.
- Unlike regular seller-owned properties, HUD does not have any personal or emotional ties to the property, they are simply trying to recover the loan.
- You, the buyer should submit your offer according to what you (with your agent’s guidance) feel the home is worth.
- If HUD does not accept your initial bid, they may counteroffer, giving you a chance to accept or offer another bid.
Things to know
- HUD homes are being sold “as is”. This means that there will be no repairs made by HUD at all.
- You will be able to get an inspection, but you will not be able to negotiate any repairs.
- Utilities are not on. Electric is off, water is off, property is winterized.
- To have utilities turned on you must turn in a form to HUD where they approve of this during the inspections. If there is anything on the HPIR or PCR that indicates that a major system might have an issue (such as electrical or plumbing) then they are likely to deny the request.
- The cost associated with turning on and off the utilities will be a cost to the buyer.
- HUD does an initial inspection of the property before it goes on the market for sale, this is the “HPIR”, however, it is NOT a full home inspection. It is a general one, it test for things such as: possible plumbing leaks, general look at roof, pests, water heater, etc…
- (HPIR: HUD Property Inspection Report; PCR: Property Condition Report)
- Buyers automatically get a 15-day option period to perform inspections and get their financing in order.
- There is no guarantee that you will receive your earnest money back if you cancel the contract.
- Something must be identified that was not disclosed upfront (such as HVAC doesn’t work).
- Investor are not eligible to receive their earnest money back should they cancel the contract.
- Only HUD-registered real estate agents can submit bids.
- There is no way to know who has bid on a HUD home. It is available until HUD accepts an offer.
The Process of Buying a HUD Home
Buying a HUD home is a unique process that differs from a traditional real estate purchase. Here’s a step-by-step guide to help you navigate it:
1. Get Pre-Approved for Financing:
This is no different than a regular purchase in terms of being able to honor the terms of the contract.
*You can get pre-approved with a lender and bid on the property simultaneously. So you don’t miss the opportunity (ask me for a lender app asap).
This not only helps you understand your budget but also strengthens your offer when you’re ready to bid on a property. Remember, HUD homes are sold “as-is,” so be sure to budget for any necessary repairs.
*Make sure your lender is aware upfront that you are offering on a home with no utilities on and that you will be requesting them to be turned on.
This could have an impact on the type of loan that you get and it’s best to have a game plan before offering.
2. Work with a HUD-Approved Real Estate Agent
Only HUD registered Real Estate Agents can submit offers on HUD properties.
Any agent can register as long as their sponsoring broker is registered with HUD.
***Agents, reach out to me for info and help on this***
3. Search for HUD Homes Online
The best place to find HUD homes is on the official HUD Home Store website (hudhomestore.com). You can search by location, price, and other criteria to find properties that match your needs. Once you’ve found a home you’re interested in let me know so that I can get you additional information.
4. Submit Your Offer
(I have an info sheet on what is needed to submit your offer).
Unlike traditional home purchases, all offers on HUD homes must be submitted electronically through the HUD Home Store website by your HUd registered real estate agent.
During the initial 30-day exclusive listing period, only owner-occupant buyers can submit offers. If the property is still available after this period, it opens up to all buyers, including investors.
- Flexible Bidding: You’re not limited to the listing price; you can submit a lower-than-asking-price bid and see if HUD accepts or counters. This flexibility can work in your favor, especially if the property has been on the market for a while.
- Earnest Money Considerations: Be aware that your earnest money deposit is not guaranteed to be refunded if the deal falls through due to inspection issues or financing problems. Make sure you’re fully committed before placing your bid.
- Closing Costs: You can ask for closing costs in your offer.
6. Secure Financing and Close the Deal
If your offer is accepted, congratulations! You’ll need to move quickly to secure your financing, as HUD typically requires a closing date within 30-45 days. Be prepared to finalize your mortgage, complete any required inspections, and coordinate with your lender to close on the property.
Key Tips for Buying a HUD Home
- Budget for Repairs: Since HUD homes are sold “as-is,” be prepared for potential repairs. Consider financing options like the FHA 203(k) loan, which allows you to roll the cost of repairs into your mortgage. *This is very lender specific.
- Understand the Risks: With utilities turned off and no guarantees on the home’s condition, it’s essential to conduct a thorough inspection before finalizing your purchase. Be prepared for unexpected repairs and factor that into your budget.
- Act Fast: HUD homes can sell quickly, especially if they’re priced competitively. Once you find a property that meets your needs, submit your offer promptly to avoid missing out.
- Work with an Experienced Agent: Navigating the HUD home buying process can be complex, but having an experienced real estate agent on your side can make all the difference.
Is a HUD Home Right for You?
Buying a foreclosed HUD home can be a smart investment, whether you’re a first-time buyer looking for a budget-friendly option or an investor seeking your next project. With potential cost savings and the flexibility to submit lower offers, HUD homes offer unique opportunities to buyers.
However, it’s essential to do your due diligence and work with a knowledgeable real estate professional to ensure a successful purchase.
Ready to Explore HUD Homes?
If you’re interested in exploring HUD homes in the Ellis County and DFW area, I’m here to guide you through the process. With experience in foreclosure sales and HUD properties, I can help you find a great deal and turn it into your dream home or next investment. Contact me today to get started!
I hope this guide has given you a clearer understanding of the HUD home buying process.
Don’t let this overwhelm you, I can guide you through the entire process and get you HOME.
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