FAQs about buying HUD HomesPosted On: April 2012
ASK AN ILLINOIS REALTOR, WITH TIFFANY BREWINGTON
What is a HUD home?
A HUD home is simply a home that was purchased using an FHA-insured loan that has since defaulted and been foreclosed upon. HUD (The Department of Housing and Urban Development) is the federal office that takes responsibility for FHA and its loans. If an FHA-insured home is not purchased at the foreclosure auction, then FHA reclaims the home, pays off the lender, and offers the property for sale to the public. These properties are often referred to as HUD Homes or HUD Foreclosures. All HUD homes are residential, 1-4 units.
Can anyone buy a HUD home?
Yes, as long as you qualify for a mortgage or have the cash, and are able to secure some funds for closing, you may buy a HUD home. There is a priority period where only purchasers who plan to use the home as their primary residence are given precedence, but after that period, investors can also submit bids on HUD homes.
Can I buy a HUD home on my own?
No, You must use a Realtor to purchase a HUD home. The Realtor must work for a HUD approved real estate brokerage. They will submit offers on your behalf.
Who pays the real estate commission on a HUD home purchase?
The buyer pays the real estate commission for their agent, which is paid for out of the proceeds of the sale. HUD simply lets the buyer BORROW the money to pay for the commission (rolling into the loan) instead of forcing the buyer to come up with the cash at closing, which oftentimes makes it seem that the seller (HUD) is actually paying it, but they are not.
When you make a bid, the agent’s commissions are deducted from the bid price. Oftentimes since the buyer does not directly pay this fee, it is transparent to them, but the payment of the buyer’s agent’s commission can affect the chances of the buyer getting the highest net bid. Example: if there are two offers on a $100k home, and one real estate agent charges 3% commission, and the other 5% commission, then the higher bid would get the home with an offer of $97k versus $95k. HUD’s bidding documents have a blank line for real estate commissions and state that the buyer’s agent may receive up to 5% of the selling price.
What is the procedure for buying a HUD home?
HUD foreclosures are sold online on HUD’s Website through a bidding process. Your Real Estate Agent will submit your bid online for you. Bids can be submitted any day of the week including weekends and holidays. Bids are typically opened the next business day, and if your bid is accepted, then your real estate agent will usually be notified within 48 hours.
When a HUD home is listed for sale, there is an initial offer period (ten calendar days) in which HUD homes are first offered to purchasers who plan to live in the home (owner-occupants). If after that time no owner-occupant offer is accepted, then offers made by the general public (including real estate investors) will be reviewed. If your bid is accepted, then your Real Estate Agent will be notified, and help you through the paperwork and transaction. Closing usually takes place after 30-60 days after your accepted contract.
How do I finance my HUD home?
HUD does not make loans directly, and you must also use a HUD-approved lender to purchase a HUD home. You may be able to get an FHA loan to purchase a HUD home, as long as you have never defaulted on an FHA loan. If the property doesn’t meet FHA requirements, you will have to either deposit monies into escrow to fix the items (Maximum $5,000), do a FHA 203k Rehabilitation Loan, or choose another form of financing. Remember that the buyer can request HUD to pay all or a portion of the financing and closing costs. It is important that you have financing lined up before making a bid on a HUD home, as they are strict on their timelines if you are awarded the sale.
Can I ask HUD to make repairs?
No, HUD Homes are sold “as—is,” and without a warranty. The new owner is responsible for all repairs. HUD’s asking price often reflects the fact that repairs may need to be made and that the buyer will have to spend money on improvements. It’s very important to have a home inspection to evaluate the condition of the home. Many HUD foreclosures are often fixer-uppers, but there are loans in place you can obtain through FHA for these types of homes.
Tiffany Brewington is an Illinois Licensed Realtor and Short Sale Expert with Chicagoland Residential Realty in Glen Ellyn, IL. Have a Foreclosure or Short Sale question? Please write to Tiffany Brewington
Posted On: April 2012
Back to Article List