Every home buyer (and chatty person I run into) wants to know about good real estate deals, and thinks that foreclosures are where the deals are at. I agree, with a caveat. Many foreclosed homes in the greater Portland Metro Area are HUD (Department of Housing and Urban Development) homes, which provide the chance to get that great deal, but buying a HUD foreclosure is a little different than a normal real estate purchase. In order to understand the HUD home buying process you must first understand what a HUD home is.
What is a HUD Home? From the HUD website, it states: “A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.”
How Much Are HUD Homes? HUD prices homes at current market value and sometimes a little less in order to entice buyers for a quick sale. HUD homes that need repairs will have an adjusted price to compensate for the repairs as all homes are sold as is with no warranties. If the home needs repairs it’s up to the buyer to decide of they still want to buy the home and make the repairs themselves. I have not seen a HUD home have repairs done in order to qualify for a new FHA loan, but I have seen many other bank owned homes (owned by Wells Fargo, Chase, local banks, etc) have thousands of dollars worth of work done in order to close the deal.
Can Anyone Buy A HUD Home? It depends on the timing. Anyone can buy a HUD home, but purchasers who are buying the home as their primary residence are given first priority. If the home isn’t bought after the initial bid process than an investor can submit a bid. Often the listing will say “no investor offers for first 14 days,” which is the blink of an eye in this market.
Submitting An Offer: HUD foreclosures are sold differently than a normal sale. HUD uses a bidding process where they open up the home to bids by primary residence bidders. At the end of the initial period, HUD will accept the highest offer if it meets their requirements. If all offers are unsatisfactory after the initial bidding period, bidding is opened to everyone including investors. If your offer is accepted you will be notified within 48 hours and will be given a settlement deadline within 30-60 days of your contract acceptance.
Do I Have To Use A Realtor To Bid? Yes. In order to bid on a HUD home, you must use an approved HUD Realtor. In order for a Realtor to be HUD approved they must first submit paperwork to qualify and have a background check. In Oregon all Realtors and licensed real estate agents have to have back ground checks, so this is not a hard task to accomplish.
What Type Of Financing Can I Use On A HUD Home? You can use an FHA loan, conventional loan, or cash to purchase a HUD foreclosure. You must have proof of funds if cash or a pre-approval letter from a lender when submitting an offer. You will have time after offer acceptance to obtain financing through a financing contingency.
Can I Inspect The Property? Yes, after your offer is accepted you will be given enough time to complete your due diligence period. However, keep in mind that HUD will not help with repairs. If you find a defect in the property, you can ask HUD to reduce the price to pay for repairs, cancel the contract, or continue on with the purchase and fix the property yourself. Buying a HUD home can be a great way to get a deal on a home, but keep in mind, just like any other government entity, there is a process. Paperwork must be perfect, homes are sold as-is, and there are usually multiple bids so you have to be patient.
So as far as getting a major deal, it’s really on a house by house basis, but knowing your financing requirements, your own budget for repairs, and your ability to do repairs, are a must before setting your heart on a HUD home.