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How to buy a HUD owned home?

HUD (Housing and Urban Development) is a government department that also includes FHA (Federal Housing Administration). HUD holds an inventory of repossessed homes that are offered for sale. In most cases, the selling price of HUD owned homes is usually set at a steep discount to the actual market value of the property. The discounts usually attract home buyers interested in acquiring a property that offers decent built-in equity right after closing on the purchase transaction. Depending on the neighborhood and the condition of the property itself, great deals can be found by purchasing a HUD owned home.

To promote its mandated objectives of expanding homeownership, FHA insures home loans that are made according to its prescribed guidelines through its approved lenders. When any such loan goes into foreclosure due to non-payment, the lender files their claim for insurance. HUD/FHA pays the lender the total default amount and ends up taking possession of the home. Using its appointed network of real estate brokers and their agents, it tries to sell off these HUD homes to recover the insurance amount it paid to the FHA lender.

The following points need to be considered before making the decision to buy a HUD repossessed residential property:

  • HUD repo homes only consist of residential properties. They can be single family homes and multi-family with no more than four units.
  • The other residential multi-family units can be rented as along as the borrower or owner resides in one of the units.
  • The first preference for HUD owned homes is always given to those home buyers who wish to occupy the property as their primary residence. If the property fails to attract any interest even after a good deal of time, the property may be offered for purchase even to investors who only seek rental income.
  • All the HUD homes are sold through their appointed listing agencies. The entire list of these agencies can be found on their website.
  • All the homes offered for sale with all the relevant information pertaining to the individual property can be found on the HUD listing agent’s website.
  • The purchase bid for any listed home must be placed through a HUD registered real estate broker. HUD pays the real estate commission in case of a successful bid.
  • All the HUD properties are sold as AS IS. This means it doesn’t offer any warranty regarding the condition and occupancy of the dwelling. It’s the responsibility of the bidder to get the property inspected.
  • If any problems come up during the inspection of HUD home, the needed repairs and the report should be included. This allows HUD to be cognizant of the needed repairs and allows them to make a decision regarding the acceptance or denial of the submitted bid.
  • As most of these HUD properties are usually not in habitable condition due to the need for repairs or cosmetic adjustments, most conventional don’t lend on them. But FHA loans can be sought on them, especially the 203(K) loan which allows financing even the necessary renovation costs.

The decision to purchase a HUD owned home can prove to be a wise investment when all the necessary ground work and inspections are completed prior to a bid. Keep the above points in mind and make your purchase of a HUD home an easy and profitable one.