How to buy a HUD: Part 1
brought us many changes to the way HUD sells homes as
HUD has moved toward privatizing its effort to sell its
foreclosed homes in inventory. As a result, you can now
find a list of HUD Homes on the internet, pick one out
that you like and buy it … right? Well not exactly, but
we will give you some specific pointers to getting
through the maze and the myths.
First of all, you should know that a home becomes a HUD
Home because someone that had an FHA Insured loan,
defaulted on that loan and was foreclosed by their
lender. The lender in turn collects from FHA (Federal
Housing Administration) any losses they incurred from
foreclosing. FHA is part of HUD (Housing and Urban
Development). HUD in turn eventually gets the deed to
the property and offers it for sale to the general
The reason lenders can recover their losses is that
everyone, yes everyone who gets an FHA Insured loan pays
what is called “mortgage insurance”. These insurance
premiums show up on your settlement sheet as an initial
premium, which is usually added to your loan amount and
then an additional monthly premium is added as part of
your mortgage payment. These premiums go into a fund to
Now that you know how a home becomes a HUD Home, you
need to know that it takes 6-12 months for HUD to get
the deed, so it can try to evaluate and sell the home.
It takes the lender 3-6 months to complete the
foreclosure process and another 3-6 months to get
reimbursed by HUD so HUD can get the home, inspect,
appraise the property and put it on the market. All the
while the home is usually vacant; this total timeframe
could easily be 12-18 months from the date of
foreclosure, but 8-12 months is probably the norm. All
these and more are reasons that HUD sells homes strictly
on an “AS-IS” basis.
HUD Homes typically have been vacant for an extended
period of time often without any utilities turned on.
HUD is working with its private Marketing and Management
contractors (M&M’s) trying to come up with an efficient
way of keeping things like sump pumps running and
getting utilities turned on before the appraisal is
completed. Until recently, appraisers did not
necessarily have the benefit of having gas and electric
service. How could they give a reasonable determination
of value without knowing if the plumbing, electric,
heating and air conditioning works? These procedures
have been changing and result in better appraisals.
should be conducted to see for yourself exactly what the
condition is so that you go to the settlement knowing
what to expect from the home and what repairs will be
Remember, HUD Homes are sold in As-Is condition. If the
repairs needed exceed $5,000 HUD has a program to lend
you the money called its FHA 203k rehab loan program (we
will cover details of that program in a future article).
requires you to use an approved real estate agent
to help you use their contracts and forms to submit
contracts if your bid is accepted. You can find the HUD
property list online at
512 developing provides vital real estate
foreclosure data. You will also find need to find a
qualified mortgage professionals to facilitated your
next real estate transaction.
There is a FAQ section at
helps you to understand the difference between Insured
(IN), Uninsured (UI) and Insured with an escrow (IE).
Briefly, Insured means that the property meets HUD’s
minimum property standards and has been appraised for
the stated value and your lender will not need a new
appraisal (which saves you $400.00 on a new FHA
Insured with an escrow means that HUD’s inspections and
appraisals indicate that there is less than $5,000 in
repairs needed for the property to meet HUD’s minimum
property standards. This is important because you need
to know that the minimum property standards are in fact
very minimum. Do not give up on your right to a home
inspection just yet. First, take a look at the HUD
minimum property standards. You need to know that HUD
expects you to complete the repairs and then get your
lender to inspect and approve the repairs before you can
get the funds from the repair escrow. This means that
you need to get someone to do the repairs who will wait
to get paid when you do or you must lay out the money
and get reimbursed by your lender.
Uninsured properties require you to pay cash or get some
kind of rehab loan. These homes need more than
$5,000 in repairs and often need $10,000 to $20,000 or
more. HUD offers the FHA 203k rehab loan, which I have
done many times for clients and works very well. An
experienced real estate agent as well as a
lender experienced in the processing of FHA 203k
loans will help save you time and money. The interest
rates and the amount of loan discount points is usually
a little higher than a standard FHA loan, but you can
often buy these properties at significant below market
prices if you are willing to put up with the higher fees
and the time of fixing them up.
How to buy a HUD: Part 2
you've understand how a home becomes a HUD Home, you
then need to know what obstacles you must overcome to
make your purchase and how to manage the "risks" of
buying foreclosure real estate.
Anytime you sign on the dotted line to purchase a
property "as-is" without even a financing contingency,
you had better know what you are doing. This sounds
scary, and it should, but there are clear steps you can
take that will help make this a better experience for
you and make it the best single investment you will ever
make in your life!
There some clear differences you and us must understand
when dealing with HUD. The contract is very different
and you must use the HUD contract and HUD Addendums.
This is critical because you just cannot buy the home
without these forms and your agent should be sure to
explain both sides of the contract. The back side of a
HUD contract contains all the fine print. HUD also has a
fairly new online bidding system and you want an agent
familiar with this system.
We are registered with HUD, only HUD registered agents
can even submit bids. Bids can be submitted until
midnight each day Monday through Friday (you can submit
bids on the weekend, but they count as if done on
Monday). In most states new listings are posted each
Friday, usually by mid-day, with bids due the following
Tuesday for full price Owner-Occupants only. We will
explain this to you, but remember, the exact days are
different in many areas.
The New Listings are made available to Owner-Occupant
bidders who are prepared during the initial bid period.
If the property is not sold during the first bid period,
it will be made available to All Purchasers (including
investors). The exact number of days between each change
can differ which is yet another reason to be sure and
deal with us who have experience with HUD. HUD has also
been known to change the rules often, particularly in
the last year as they have different M&M Contractors
handling sales in various states.
In addition to a good agent
it is a good idea to speak to a lender familiar with HUD
Homes and in particular, find a lender who is
knowledgeable about FHA 203k loans. These loans will
help you get the money to make the home purchase AND get
the funds you will need to fix up the property. It is
this program which helps you get the maximum benefit and
the maximum "sweat equity" when buying a HUD foreclosure
or any foreclosure. Part of the American Dream is to buy
a home and fix it up so that it is worth more than you
paid for it - the FHA 203k is one of the best ways to
The FHA 203k loan helps to protect you from yourself. It
requires a HUD approved inspector to thoroughly review
the property pointing out the required repairs and
discussing with you the repairs you would like to have
completed. This is sort of a "wish list" because they
will lend you all the money as long as you qualify for
the loan amount. The minimum, however, is $5,000.00, but
these loans include paint, carpeting, kitchens, baths,
windows and even draperies and a whole lot more.
The best part of these loans is that the person who
inspects the home for you in the beginning is the same
person who inspects the home as the work is completed in
order to approve draw requests. You have to complete
some work before the repair money is released to you,
therefore you have to be prepared to lay out the money
or get a contractor willing to wait for the draw
While you are not required to get a FHA 203k loan and
there are many properties that do not need extensive
repairs, the program is very helpful in making you think
about what you are getting into and providing
independent inspectors to try a make sure the work is
done properly and that the home is in overall good
If you are purchasing an Insured property (IN), no
repairs are required, no appraisal is required, but you
should absolutely, positively get a home inspection from
a certified home inspection company. Your agent should
be able to tell you the procedure for turning utilities
on before the inspection; HUD doesn't always get the
condition of major systems right. Your agent must make
the request to turn on the utilities after HUD accepts
your contract. You will then have 15 days in which to
conduct the inspection. There is a separate HUD Addendum
that covers many specifics regarding this process and
why you should get a Home Inspection. A good agent will
know this and be very helpful explaining and
coordinating the process.
You cannot delegate the responsibility for making a
smart home buying decision. A knowledgeable real
estate agent can assist you, be sure to get a
Home Inspection or a good HUD Inspector for a FHA
203k loan and you will have managed the risks and
increased the rewards of buying a HUD Foreclosure
How to buy a HUD: Part 3
HOW DO I ACTUALLY BUY A HUD HOME? Now that you know
how a home becomes a HUD Home and what an FHA 203k rehab
loan can do for you, we need to understand how to
actually buy the property. A review of previous articles
will give you good background, but the process is
Unless you are a Teacher or a Police Officer, you need
to to call us. 512 developing real estate professionals
have the knowledge and experience in HUD and FHA
procedures and guidelines. I suggest that even Teachers
and Police Officers should seek out the assistance of
our company. Teachers and Police Officers are eligible
for special programs, the Officer/Teacher Next Door
Programs, which will be covered in future articles.
Everyone needs a real estate agent to submit
a bid to HUD on his or her behalf.
Looking over the HUD List is something you can do on
your own, as well.
If we do not find you a HUD Home within your criteria on
the current list (which happens a lot due to little
inventory), there are tools you can use to find the home
yourself on this website. You will still need us that is
registered with HUD to bid on these properties. It is
helpful to know this in advance because there are
bidding deadlines to be concerned about. You do not want
to find a home only to find out that the bid is due at
midnight tonight and your agent is not registered
All bids are due at midnight on the bid deadline
published on the HUD List. Since the bids are
submitted through the Internet, your agent can submit up
until midnight. Be sure to ask us to PRINT the Bid
Confirmation that HUD presents on the computer screen.
This is the only way to "find" your bid if it gets
Most Texas markets list the NEW LISTINGS on
Fridays and have a bid deadline the following Sunday.
Bids for these properties are available only to
Owner-Occupant bidders. HUD tries to give new homeowners
a short period of time to bid against other new
homeowners (as opposed to experienced investors). If the
property is not sold to an Owner-Occupant, the property
is made available for bids on a DAILY basis, allowing
investors to bid.
The daily bid properties are sometimes allocated to
Owner-Occupants again for a short period of time before
they move to the final category, daily bids by All
Purchasers. Anyone can bid on these properties and you
can bid any price; it does not mean that HUD will take
the highest offer. After all, this is not an auction; it
is a sealed bid process. Each market does have slightly
different timeframes for these categories, but now that
you know about them, you will be able to determine the
rules in your area. Check with your local real estate
professional to get the HUD's latest changes.
Owner-Occupants Only – Any Price, within midnight
Daily, All Purchasers – Any buyer, any price acceptable
There has always been talk of HUD’s "magic number"
in terms of how low they will go. Don’t let anyone tell
you they know this bottom line number because the HUD
Management and Marketing Contractors (M&M’s) who sell
the houses for HUD don’t know and if they did, they
certainly are not going to broadcast the information.
It's based on a number of factors. I have seen HUD
reject one offer on one day and take a slightly higher
OR lower offer on another day.
The real point is to do your homework. Before you look
for a home you will determine how much house you can
afford to buy. This is absolutely critical to do
BEFORE you start looking. It’s just too easy to fall
in love with a house you cannot afford to buy. Find the
house you think you like and determine what the houses
sell for in that immediate area. You will find that HUD
Homes can be great values, sometimes even great
bargains, but they can also sell for market value if
they are in condition and in a desirable area.
Once you determined the right home, then you determine
how much you want to pay for the property. Anytime you
bid real low you risk losing the bid to someone else who
really wants the property. My suggestion is to pay what
you can afford to pay for the house you will call home.
If you only want it if it is a "super bargain", then
take your chances and bid whatever you want. However, a
word of caution, good HUD Homes in desirable areas come
and go very fast. Be prepared to be decisive, but do not
rush into anything.
If you do your homework up front you will be better
prepared to take advantage of that "great deal"
that comes your way and requires you to move quickly in
order to get it.
Steps You Should Take:
yourself pre-qualified before looking ;
for houses in your price range and in your area of
the HUD List
yourself on a regular basis;
a knowledgeable real estate agent to work with.
be afraid to bid on what you like;
sure you get a Home Inspection if you are the
There is no substitute for knowledge and common sense
regardless of what you are trying to do, but they are
necessary ingredients for you to make the largest single
purchase you will ever make.
Foreclosures has assembled a network of real estate
agents, lenders, home inspectors,
title companies and other industry professionals
as well, but your real estate agent must be registered
with HUD and your bid must be submitted online at HUD’s
web site. If your bid is accepted you must get your
original HUD contract and forms to HUD within 48 hours
of being posted to HUD’s Bi Results section of HUD’s web