What Is A HUD Home? A HUD home is the result of a failed mortgage that was insured by FHA. When the previous occupant purchased the property, it met certain criteria which made it eligible for FHA financing. FHA is not a lender but an insurer of qualified mortgages.
The mortgage lender is typically a local bank yet the balance of the mortgage is insured by FHA.When the mortgagee defaulted, the lender foreclosed the property and made a subsequent claim to FHA who released funds to the lender to cover the loss. In return, the lender deeded the property to HUD for disposition.HUD then placed the property for sale and set the sales price as the property’s value in its current condition.
HUD does not make cosmetic repairs in order to increase the price/marketability. HUD’s objective is to provide safe housing at market-price to stimulate home-ownership.
How Do I Access A HUD Home? Use the electronic or combination lock box located on the property. Please note that the listing agent is not allowed to sell or give out keys to HUD homes.
A licensed agent must accompany all third parties, including but not limited to buyers, inspectors, contractors and lenders, when viewing any HUD home.
Prior to closing buyers are not allowed to enter the home for any amount of time without a licensed agent.
What Type Of Financing Can I Use To Buy HUD Properties? Not all HUD properties qualify for FHA financing; therefore, it is essential that the realtor reviews the “Type of Financing” on the listing prior to submitting a bid. Cash, conventional, rural development or VA loans may be used if the lender qualifies the property.
The insurability is irrelevant for properties when non-FHA financing is to be used; however, buyers are encouraged to look at the escrow and other notes as they may highlight the property’s deficiencies and overall condition.
The amount listed for repairs in the appraisal report must be escrowed by the buyer when using FHA financing. Escrow is an additional amount to be financed by the buyer and should not be considered a credit or gift from HUD. The escrowed amount will be retained by the lender and disbursed to contractors as work is completed after closing. Cosmetic repairs, such as, missing appliances, holes in the wall, fading paint, etc. are not considered deficiencies and will not be listed on the appraisal report.
Buyers intending to use FHA financing should pay particular attention to how the property was listed because the lender will be required to use the FHA appraisal obtained by HUD.
Who Can Purchase HUD Properties? HUD Homes may be purchased by an individual, company, HUD approved non-profit organization, or government entity that can secure financing or pay cash for the property.
Interested buyers must submit bids through a HUD registered real estate agent. A pre-qualification letter from a lender is required for buyers obtaining financing. Cash buyers are required to provide proof of funds for at least the amount of the purchase price.
HUD will award the winning bid to the purchaser with the highest acceptable net to HUD. Up to three back-up offers may be selected as well. Back-up offers will be honored until the property closes. Winning bids are subject to completion and receipt of all correctly completed required documents by the Asset Manager.
What Is A Property Condition Report? An initial Property Condition Report (PCR) is immediately ordered when the property becomes part of HUD's inventory. This process is a visual inspection of the property and a plumbing pressure test.
The PCR is not prepared by a certified inspector; therefore, no warranties are made in conjunction with the report.
The preparation of the PCR is not a home inspection and is not intended as a replacement for the home inspection. Buyers are strongly encouraged to hire a professional inspector to complete a full home inspection.