What is a HUD Home

Most new investors have heard of the term "HUD home," but are unaware of its definition. HUD is actually an acronym for United States Department of Housing and Urban Development.

What Is a HUD Home

When a residence backed by a Federal Housing Administration (FHA)-insured mortgage ends in foreclosure, HUD acquires the home and takes on the role of property owner. The organization then puts the property up for sale in an attempt to recover losses incurred via the foreclosure claim.

HUD homes are available for anyone to purchase as long as the potential homebuyer can pay in cash or has the ability to qualify for a loan. Each home has an initial priority period in which the home is offered strictly to buyers seeking the home as a primary residence. After the priority period, the sale of the home is open to all types of buyers, including investors.

The price of a HUD home is determined based on its appraisal and the fair market value of the location. If the home is in need of repairs, the value is marked down accordingly. HUD does not make repairs to homes. Instead that task is left to the homebuyer. In other words, the home is sold "as-is."

Currently, there are HUD homes available across the United States. The HUD Web site features links to state-based sites dedicated to HUD listings. Once a potential homeowner locates a home he or she would like to visit, a HUD-approved real estate agent is available to show the property.

HUD sells its homes through a bidding process. The initial stage of this process entails the offer period in which real estate agents submit sealed bids on behalf of their clients. After the initial period has concluded the organization reviews the offers and typically accepts the highest bid.

If the home does not sell during the introductory offer period, HUD continues to accept bids through real estate agents. Each bid is opened and reviewed upon receipt. If the bid is accepted, HUD will contact the agent within two days. From there, a settlement date is established. This date is generally 30 to 60 days after the date the contract is accepted.

As previously mentioned, HUD homes are purchased via cash or financing. While HUD does not finance home loans, a HUD home may qualify for an FHA insured-home loan. It is up to the homebuyer, however, to shop around and find a home loan for which he or she qualifies. It is especially important for the buyer to have all the loan details in order because if a buyer's bid is accepted and the loan fails to close, the buyer could possibly lose any earnest money submitted with the initial offer

Despite the fact the government sells HUD homes, it's important to still have the home inspected before making the purchase. Remember, HUD homes are sold "as-is," therefore any problems located by the inspector are the responsibility of the buyer. Be sure to inspect the home prior to making an official offer … not after when it's too late.

Once a home sale has been completed, HUD pays the real estate broker up to six percent in commission for the sale of the residence. Payment for the agent is specified in the HUD sales contract prior to the sale's closing.

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