Almost everyone has heard the term “HUD home,” but a lot of people don’t understand exactly what it means. I am hoping to give some clarification around this topic and answer some of the questions I am most commonly asked by my clients.
The word “HUD” is actually an acronym that stands for United States Department of Housing and Urban Development. When a home is purchased with a loan insured by FHA (Federal Housing Administration), and the purchase ends in foreclosure, HUD takes ownership of the home. In most cases, HUD will then list the property for sale in an attempt to recover their losses.
There are no special qualifications to be met in order to purchase a HUD home. They are available for anyone to purchase, as long as the purchaser has the financial means to do so and pays cash or obtains a loan.
Typically, when a HUD home is first listed, there is a time period during which it is made available only to purchasers who intend to occupy it as their primary residence. After this period has passed, and if the home has not sold, the property will be open to all types of purchasers, including those who will use the property as a second home or investment.
HUD homes are typically sold “as is,” as HUD does not make repairs to homes. The home price is based upon an appraisal and the fair market value of the home, considering the condition and repairs that might be needed. In most cases, the purchaser will be responsible for any repairs after the sale of the home.
A HUD home is sold through a bidding process. The first stage of this process is typically a time period during which realtors can submit offers on behalf of their clients. After this initial period is over, HUD reviews the offers and, in most cases, accepts the highest bid or the strongest offer. Once an offer has been accepted, a closing date is agreed upon, which is usually about thirty to sixty days from the date of acceptance.
It is important to have a professional home inspection done when purchasing any property, and HUD homes are not an exception. Even though HUD homes are sold “as is,” and all repairs are the responsibility of the purchaser, it is important to be aware of any existing issues before purchasing the property.
HUD has a great brochure here that is worth reading if you are considering a HUD purchase.