Are you in the market for a HUD home? These homes are homes that HUD now owns because the owner defaulted on their FHA loan. The HUD doesn’t want to keep these homes in their possession. They put them on the market for at least the amount that they lost on the home.
HUD doesn’t sell the home the typical way. In other words, you won’t find it in the MLS. They use an auction style sale to get the home sold for the price they need. On the rare occasion that the home doesn’t sell auction style, then HUD may hire a real estate agent to sell it through the MLS.
Keep reading to learn how to make a bid on a HUD home.
Know What you are Bidding On
First, know as much as you can about the home. In some cases, you can view the inside of it – take this opportunity. If you can look inside, you’ll have a better idea of the home’s condition. HUD homes are sold ‘as is.’ In other words, HUD is not going to pay for any repairs, so you want to know what you are buying.
If you can get inside the home, look closely at all areas of the home. Look for obvious things like holes in the wall, but also look at the operation of the appliances and utilities. Is anything in really poor condition? Will the home pass the standard codes for the county and/or the standards for mortgage financing?
If you can’t get a typical loan, you may qualify for a renovation loan, like the FHA 203K loan. This program allows you to buy a home that is in poor condition and have the money to fix it up. You will borrow the full amount of the funds and the lender will hold onto them. As the contractor completes the work, the lender will disburse the funds.
Before you make a bid, you’ll need to know that you can get the financing. Typically, HUD wants the closing to occur as quickly as possible after they accept a bid. Without a financing pre-approval, you won’t be able to move very fast. In fact, you won’t even know if you qualify for a loan to buy the home.
Take the time before you even look for HUD homes to get your pre-approval from a lender. You’ll need to provide the lender with approval to pull your credit, proof of your income and assets, and proof of any funds you need to put down on the home and/or use to pay closing costs.
With your pre-approval letter in hand, you’ll know how much you can bid on the home. You’ll also have a better chance of getting HUD to accept your bid. The only reason you wouldn’t need a preapproval letter is if you buy the home in cash.
Bidding on the Home
Once you take all of the necessary precautions above, you can bid on the HUD home. You can’t do this on your own, though. You’ll need the assistance of a licensed realtor. Only the realtor can make the bid for you.
The auction isn’t your typical live auction, though. It’s a sealed bid. You and your realtor know how much you bid, but that’s it. The realtor sends the bid into HUD. HUD has a specific date that realtors can send bids in until. HUD then reviews the bids and chooses a winner. HUD typically honors bids from those that will occupy the property as their own first as well as cash buyers, but not investors. If HUD’s auction is unsuccessful at first, they may then offer it to real estate investors.
HUD often takes the highest bid on the home, but they base the chosen winner on their type of financing too. A cash buyer may win with a lower bid over a bidder with a higher bid but that needs financing. Because financing takes time and is riskier, HUD will often take a cash bid if it is close to that bid. Your best bet is to bid the highest amount possible if you have to secure financing for a HUD home.
If you want to buy a HUD home, get all of your ducks in a row first. The process can go quickly if HUD accepts your bid. Knowing that you can have financing and having it as ready to go as possible will help you have the most success.