Simple guide to buying a Hud home
The process for buying a HUD Home can be trying, but working with HomeFinder Inc. will make it as smooth as possible.
HUD (Housing and Urban Development) Homes are houses that have been foreclosed on by the bank. These foreclosed loans had an FHA (Federal Housing Act of 1968) insured loan which is an equal opportunity loan. The government, through the insured loan, buys these homes back from the bank and then must sell these homes as quickly as possible.
- You can gain value in equity when you buy a HUD Home.
- HUD Homes come available on the market every Friday.
- HUD homes can have any criteria you need. Examples include location, square footage, number of bedrooms, baths, garage, etc...
The homes are available for Owner Occupants for the first 10 days. Investors must wait to bid until Owner Occupants have an opportunity. All bids are blind and held until the 10 day waiting period is ended. At this time HUD will award a bidder if the bid is high enough for their needs. Keep in mind some homes may need a few minor improvements such as carpet and paint.
- To place a bid you must use a Realtor that is designated with HUD (i.e., Homefinder Inc.) and have pre-approval status with a mortgage company. All bids are done electronically.
- Earnest money is $1,000 for properties over $50,000 and $500 for properties under $50,000. Please understand this is not negotiable with HUD.
- Once an offer is accepted paperwork will be filled out and sent to Chicago HMBI.
- HMBI will check over the paperwork and sign the contract.
- Once the contract is signed, you have 45 days to close on the property.
- You may, at time of signatures, address any additional inspections you want to have done.
- Insurance will be needed before closing.
- Walk through the day before closing or day of closing.
- Close on the home.
- Change the locks.
What is a "HUD Home"?
A HUD Home is a property that was previously financed with an FHA insured mortgage and where the owner has defaulted on the loan. The lender, then, forecloses on the home. FHA pays the lender what is owed; and the lender transfers ownership of the home to FHA/HUD. Then, HUD sells it at market value.
Who can buy a HUD Home?
Anyone who has the cash or can qualify for a mortgage can buy a HUD Home.
Is it true I can get a HUD Home for a dollar?
No. HUD sells homes at market value - that means that the price is set based on the price of similar homes sold in the area.
If the HUD Home needs repairs, will HUD make them?
HUD Homes are sold "as-is," without warranty. That means that HUD will not pay to correct any problems. Buyers are encouraged to get the home professionally inspected.
Houses built before 1977 may have lead based paint, which can cause harm to your family; so be sure to read about this hazard and about what you would need to do to correct it.
How do I buy a HUD home?
HUD Homes are sold through Participating Real Estate Agents.
Start by finding a HUD participating real estate agent Homefinder Inc. Realty. Your real estate agent, Homefinder Inc. Realty, must submit your bid for you. The real estate agent's commissions are usually paid by HUD.
How can I find out what HUD Homes are for sale?
The list of HUD Homes for sale is updated daily. If you see one that interests you, contact one of the HUD participating real estate agents ,Homefinder Inc. Realty, in your area. They can help you from there.
How can I get a loan to buy a HUD Home?
HUD does not make loans directly. You can contact a HUD approved lender, who will take you through the steps and actually make the loan.
Can I buy a HUD Home as an investment?
Most HUD Homes are initially offered on a priority basis to owner occupant purchasers (people who are buying the home as their primary residence). Following the priority period, unsold properties are then available to all buyers, including investors.
Are there programs for Nonprofits and Government Agencies?
HUD has a special sales program under which approved nonprofit organizations and government agencies may purchase properties at discounted prices for use in local housing or homeless programs.
Are there any special programs for Officers and Teachers?
HUD has a special sales program under which approved Officers and Teachers (as defined by HUD) may purchase properties at discounted prices in revitalization areas.
Are there any special programs for Local Governments?
HUD has a special sales program under which Local Governments may purchase certain properties at one dollar ($1.00).
When should I do a walk through inspection?
All purchasers are strongly encouraged to perform a walk through inspection at or near the date of your contract acceptance and, again, immediately PRIOR to closing. If a purchaser discovers a property condition that did not exist at the time of sale they must immediately notify HUD's property manager, HMBI, of the damage. The purchaser or agent should complete the Property Damage Report and fax it to the appropriate fax number listed on the form.
Reporting the damage does not guarantee the correction of the problem that has been discovered. The lack of written documentation describing property condition at contract acceptance, however, will preclude consideration for repairs or price adjustments in the event of subsequent damage. Each case will be looked at independently and a determination will be made as to whether the damage will be repaired (or not repaired) or, under some circumstances, credits given at closing. The buyer assumes full responsibility for the property and its condition on the date of closing. Neither HUD nor HMBI assumes any responsibility, and will make no settlement for damages reported to HUD after the close of escrow. (See item #13.E of HUD Sales Contract). Inspections are for the benefit of the buyer. Under no circumstances shall this advice be construed as a warranty by HUD or HMBI as to the condition of the properties.
What will my down payment be if I bid over the asking price?
Be advised that the purchaser must pay cash for any overbid in excess of the sales price when using FHA financing. The purchaser is still required to furnish the 3% down in addition to the amount overbid. For example, if a property is listed at $100,000 and the purchaser bids $102,000, he/she is required to pay the 3% down ($3,000) plus the overbid value ($2,000) for a total FHA down payment of $5,000. When using conventional financing, the lender will calculate the required down payment.
What is the procedure for submitting an extension request?
Effective May 14, 2001, all extension requests must be submitted to the appropriate closing agent 5 days prior to the expiration of the contract. A letter must accompany the second extension request from the lender stating the purchaser is able to close within the requested extension period.
What is the escrow $ amount showed?
It is important to note that the identified amount for repair escrows listed on the website includes the entire repairs amount plus the 10% overage. The entire stated amount will be included in the purchaser's loan.
What is the Section 203k Program?
The Section 203k program is a program for rehabilitation and repair of single family properties. The program allows the borrower to get just one mortgage loan, at a long-term fixed or adjustable rate, to finance or refinance both the acquisition an the rehabilitation.
What advertising rules must a HUD approved broker follow?
Brokers must follow the advertising guidelines established by the Fair Housing Act. The Fair Housing Act prohibits discrimination in housing for any of the following reasons: Race or color, National origin, Religion, Gender, Familial status (including children under the age of 18 living with parents or legal custodians; pregnant women and people securing custody of children under 18) or Handicap (Disability). The Equal Housing Opportunity Logo must also be present on advertisements (to the extent required by law).
In addition to the Fair Housing Guidelines, some additional rules apply: A broker may not advertise in such a way that would mislead buyers to believe they are the exclusive listing agent of the seller or affiliated with HUD or HMBI; all advertisements should include a reference to HUD; business cards or flyers are not allowed to be placed in HUD properties; also, language such as "distressed home" is not allowable. If these rules are followed there usually will not be a problem advertising HUD homes.
Should a Walk-Through Inspection be done prior to closing?
All purchasers and agents are strongly encouraged to perform a walk through inspection PRIOR to the closing. If a purchaser discovers a property condition that did not exist at the time of sale, they must immediately notify HMBI of the damage. Reporting of the damage does not guarantee the correction of the problem that has been discovered. Each case will be looked at and a determination will be made as to whether repairs will be made or whether the buyer will be given the opportunity to cancel the sale. The buyer assumes full responsibility for the property and its condition on the date of closing. HUD and HMBI assume no responsibility, and will make no settlement, for damages reported after the closing. (See item #13.E of HUD Sales Contract)
Will HUD do insect treatment or repairs / conventional loan?
No. HUD will only pay for termite treatment or repairs if required by the lender on an FHA loan. If, however, the buyer elects to change financing from FHA to a conventional or cash product, HUD will not pay for the termite work. If the buyer should switch financing to anything other than FHA, the buyer will have to reimburse HUD the costs of those repairs.
What is the Repair with Escrow Program?
The repair escrow program is offered when a HUD property requires less than $5000 in repairs to meet the intent of minimum property standards. A 10% coverage is also calculated into the costs so the actual amount given on any repair escrow can be as high as $5500. Minimum property standards are defined as items that affect the habitability of the home. Examples would be roofing, plumbing, electrical, mechanical, bare flooring, etc.
At closing, the buyer must finance the HUD-designated repairs into their mortgage. The buyer has 90 days from closing to hire a contractor and complete the repairs. Upon completion and an inspection by the lender, the lender will pay the invoices. The lender is paid a fee by HUD at closing to manage the process. If there are funds remaining after all invoices are paid, they will be applied to the principle balance of the buyer's loan. If the funds are not adequate to repair the property, the additional cost is the buyer's responsibility. If the buyers do not complete the repairs within the 90-day period after closing and no extensions have been granted, the funds are applied to the principle balance of the loan.
This program is available to both owner occupied and investor purchasers, but is only applicable on a property being purchased using a FHA 203b mortgage. If the buyer is seeking financing other than FHA, the escrow repairs funds are not granted. As of the new sales contract revised January 1999, these figures appear on the contract but are not calculated in the net.
Additional information on the 203B repair with escrow program can be found at the Mortgagee Letter 95-56.
When is the date of the next auction of HUD homes?
Check with your real estate agent Homefinder Inc. Realty to find out if Hud has scheduled a auction in your area.
Do condos have a reduced down payments?
Currently there are no programs with reduced down payments but watch our Web site for future updates.
Is HMBI allowing Agents to conduct open houses?
At this time, HMBI has a "no open house" policy.
What loans quailify for Insured with Escrow (IE)?
The only way to have the repairs done is with the FHA IE financing. Buyers are responsible for all of their own repairs when using conventional financing.
How do I choose my Closing Agent?
Closing agents are assigned based on the location of the property. If brokers do not know the appropriate closing agent, please call the appropriate office for this information.
What does "insured"? Uninsured? Insured with Escrow mean?
An insured property qualifies for a FHA 203b loan. To be eligible for FHA-insured financing, a property must meet HUD's Minimum Property Standards (MPS) based upon an appraisal. Certain properties may be insured with conditions. The "insured with conditions" designation will require certain checks/certifications to be completed by the buyer or lender on the property prior to it being eligible for FHA insurance. All conditions to a property's insurable status will accompany the listing in the notes/comments section of the listing. If necessary repairs or MPR items are discovered during the checks, the lender should contact our closing department to discuss alternatives to allow the sale to close, including 203b Repair Escrow, 203k financing, etc.. In these situations, sufficient documentation must be provided from the lender to support the change of financing
An uninsured property has in excess of $5,000 in MPS repairs and does not qualify for a FHA 203b loan. Conventional, VA, Cash or 203k financing could be used.
The insured with escrow (repair escrow) program is offered when a HUD property requires less than $5000 in repairs to meet the intent of minimum property standards. A 10% overage is also calculated into the costs so the actual amount given on any repair escrow can be as high as $5500. Minimum property standards are defined as items that affect the habitability of the home. Examples would be roofing, plumbing, electrical, mechanical, bare flooring, etc. At closing, the buyer must finance the HUD-designated repairs into their mortgage. The buyer has 90 days from closing to hire a contractor and complete the repairs. Upon completion and an inspection by the lender, the lender will pay the invoices. HUD pays the lender at closing to manage the process. If there are funds remaining after all invoices are paid, they will be applied to the principle balance of the buyer's loan. If the funds are not adequate to repair the property, the additional cost is the buyer's responsibility. If the buyers do not complete the repairs within the 90-day period after closing and no extensions have been granted, the funds are applied to the principle balance of the loan
This program is available to both owner occupied and investor purchasers, but is only applicable on a property being purchased using a FHA 203b mortgage. If the buyer is seeking financing other the FHA, the escrow repairs funds are not granted. As of the new sales contract revised January 1999, these figures appear on the contract but are not calculated in the net.
Additional information on the 203B repair with escrow program can be found at the Mortgagee Letter 95-56.
What is the earnest money deposit required for this area?
Effective April 19, 2002, the required deposit will be $500.00 when the purchase price is $50,000.00 and under and $1,000.00 when the purchase price is over $50,000.00. Please see our Earnest Money Instruction page for all appropriate details and certified funds requirements.
Are there any recent changes re: earnest money deposits?
For brokers and buyers in the Midwest, effective with bids awarded beginning on September 3, 2002, HUD and HMBI will only accept copies of Earnest Money in the form of certified funds including cashier's check, money order or Bank certified check. Earnest Money in the form of personal checks or copies of deposit slips are no longer acceptable. Please see the Earnest Money Instruction page for current requirements.
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