A HUD home is a foreclosed home in which the previous owner had an FHA loan on the property. In the case of HUD homes there are no negotiations, no haggling, or offer and counter-offers. The exact amount is specified in the HUD listing and disclosed in a document called Property Condition Summary. The asset management companies are given guidelines from HUD on what bid amount they can accept. HUD usually accepts the highest bid, or the bid that brings them the highest net. When HUD gets a property back, it turns it over to its Property Disposition Department which first secures the property from vandalism or damage. If HUD does not accept an offer from an owner-occupant, then investors can place a bid on the property.
HUD homes are sold through an auction process; once the deadline is past and bids are in, HUD reviews its options. When HUD homes are first listed there is a bid period for owner occupants, non-profits or government agencies. Every bit of information that I was handed down by multiple sources closest to HUD turned out to be unequivocally true. However, this template is used by EVERY asset company managing and selling HUD homes.
You must at the time your bid is entered into the bid database have completed the HUD purchase contract and have certified for 1% of your purchase price in hand. So, instead of the property going back to the lender as in a normal foreclosure situation, it goes back to its owner” (which in this case is HUD) as the responsible party for all FHA insured loans. HUD will also generally pay any outstanding seller costs such as outstanding tax or utility bills which relate to HUD’s ownership. You can move in faster if you purchase a HUD home eligible for FHA-insured mortgage because it has already been appraised.
Yes, you can use any lender, however, because the HUD purchase process is so much different than a normal home purchase, I would recommend that you use a local lender that is familiar with the HUD purchase process (this is important!). HUD defines a one-to-four unit property as either a single-family, duplex, triplex or fourplex. In the mid-West, for example, there are many homes to choose from because of the price range (FHA only insures mortgages of a certain dollar amount) and number of foreclosures.
If your package is going to be late, make sure your agent contacts HUD and tells them it will be late and HUD may give you a little extra time. While foreclosure has gained an especially negative connotation since millions of Americans lost their homes during the recession ‘s subprime mortgage debacle, buying a HUD home can be a positive experience as well as a great deal.