Through programs run by the U.S. Department of Housing and Urban Development (HUD), HUD homes are properties the government has acquired after foreclosure if the property was purchased using a Federal Housing Administration (FHA) loan. To recoup the government’s financial loss from a loan default, HUD auctions or sells these homes to eligible members of the public.
What Is HUD?
HUD is a federal government agency that expands affordable homeownership and renting opportunities, especially in underserved communities around the country. It also promotes equal access to owning or renting a home through its Office of Fair Housing and Equal Opportunity.
The Fair Housing Act makes it illegal for landlords, real estate companies, local governments, banks or other lenders and homeowners insurance companies to discriminate on the basis of race, religion, sex, nationality, marital status or disability.
Pros and Cons of Buying a HUD Home
Pros
- Buy a house at a discount compared to the market price
- Buy single-family or multifamily properties
- Discounted pricing means a lower required earnest money deposit—a deposit meant to signal a buyer’s intent—or down payment
- HUD pays your real estate agent’s commission (with some restrictions)
- Detailed online database of properties
Cons
- Competitive bidding process, so there’s no guarantee your bid will be successful
- HUD homes are sold as-is, so it’s possible the property might be in poor condition and need repairs
- Must use a HUD-approved real estate broker to submit a bid
- Home inspection required to establish the condition of the property
How To Get a HUD Home
There’s no income requirement to purchase a HUD home. HUD sells the homes using a priority order bid process and requires that you hire a HUD-registered real estate agent or broker to place a bid on your behalf. HUD says it will even pay the agent’s commission but with certain restrictions.
Here are key steps to follow when buying a HUD home:
1. Get Preapproved for a Mortgage
A preapproval letter will show HUD that you’re a serious buyer and that you have the financial means to close on a real estate purchase.
2. Speak With a HUD Housing Counselor
HUD recommends contacting a HUD-approved housing counselor in your area to receive pre-purchase counseling and get unbiased advice on your particular situation.
3. Hire a HUD-Registered Real Estate Agent or Broker
HUD requires that a registered real estate agent or broker must submit your bid on a HUD home. To locate a HUD-registered agent in your area, visit the HUD Homestore website and select the subheading ‘Broker Search’ in the gray toolbar.
4. Search for a HUD Home
Visit the HUD Homestore website where you can input search parameters such as city, state, home type, buyer type, home age, bedrooms, bathrooms and more. For additional information on how to search for HUD homes, go to the HUD Homestore site and choose ‘Help’ in the top right corner of the page. You’ll find short videos, guides and answers to additional questions.
5. Get a Home Inspection
Typically, you’d get a home inspection after a purchase agreement is signed, but with a HUD home, the agency strongly recommends getting a home inspection before making an offer to know what you’re getting into. HUD properties are sold as-is, so there won’t be room for negotiating the price or the terms of the sale after a bid is accepted.
6. Ask Your Agent to Submit an Offer
Once you find a HUD home you want to buy, your agent must submit a bid online for you. The timespan during which bids are opened and reviewed depends on the property’s listing period. If HUD doesn’t receive any acceptable bids, you can submit another one until the home sells.
Bids are accepted any day of the week, including weekends and holidays. HUD will review bids the next business day after delivery. If HUD accepts your bid, your real estate agent will be informed, usually within two days.
7. Close on Your HUD Home Purchase
You will be given a settlement date, generally within 30 to 60 days, during which you need to finalize your mortgage financing and close the sale. It’s worth noting that HUD homes are also sold by private companies or marketing and management contractors known as asset managers.
You can use the website to locate an asset manager for your area. All bidding and closing information will be processed by the asset manager responsible for the specific property.
HUD Incentive Programs
HUD offers several special programs through which eligible homebuyers can purchase a HUD home.
Good Neighbor Next Door
Police officers, teachers (pre-K through 12th grade), firefighters and emergency responders can become homeowners through HUD’s Good Neighbor Next Door Program. HUD offers a 50% discount off the property’s list price as a second mortgage. In exchange, you must commit to live in the property for three years as your primary residence.
Eligible homes in revitalization areas are listed exclusively for sale through the Good Neighbor Next Door Sales program. Properties are available for purchase through the program for seven days.
You must meet HUD’s eligibility requirements and comply with its regulations for the program. If you’re eligible, check the listings for your state and follow the instructions to declare your interest in a specific property. If more than one offer on a single home is received, then a selection is made by random lottery.
HUD also requires that you sign a second mortgage note for the 50% discount. No interest or payments are required on this second mortgage if you fulfill the three-year occupancy requirement and submit certifications each year.
Dollar Homes
HUD’s Dollar Homes program is designed to help local governments provide affordable housing opportunities for low- to moderate-income families by selling municipalities-qualified HUD-owned homes for $1 each.
The FHA initially acquires the homes in the program after the lender has foreclosed on the owners. Single-family homes are made available through the program if six months have passed and the FHA is unable to sell the property.
The vacant homes must also have a current market value of $25,000 or less to be eligible for the program. The local government can then buy them from HUD, fix them up and resell them to low- and moderate-income buyers in their area.
Nonprofit Programs
The FHA offers nonprofit organizations the opportunity to purchase HUD homes at a discount. The nonprofits then fix the homes and resell them to low- or moderate-income families. The FHA requires all nonprofits to obtain approval in order to participate. You can find a HUD-approved nonprofit by checking the HUD nonprofit online roster.
Housing Choice Voucher Program (Section 8)
The housing choice voucher program helps low-income families, the elderly and the disabled to afford housing. Because housing assistance is provided on behalf of the family or individual, participants are allowed to find their own housing, including single-family homes, townhouses or apartments. However, the family’s income cannot exceed 50% of the median income for the county or metropolitan area where they choose to live.
Section 8 recipients can choose any housing that meets program requirements; they are not limited to subsidized housing projects.
Housing choice vouchers are administered locally by public housing agencies, which receive federal funds from HUD to administer the voucher program.
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