Many people all around the United States have mortgages that have been insured by the U.S. Department of Housing and Urban Development (HUD). When one of these homeowners cannot meet the payments, the institution that arranged the loan forecloses on the house. HUD then pays the lender the amount of the mortgage and becomes owner of the home. This is what is known as a "HUD home."
Not Necessarily "Fixer-Uppers"
HUD homes may have the reputation for being "fixer-uppers," but they do not necessarily need repairs. However, they are sold without warranty, so the buyer must accept them "as is." If the house does not need repairs, its purchase price will reflect that fact. Additionally, HUD may give the buyer special incentives; this could be an allowance to improve the property, an allowance to offset moving expenses, or a bonus for an early sale. With many HUD homes, the buyer may ask the government pay some or all of the financing and closing costs. As with any home sale, the building should be inspected by a professional before a bid is submitted.
Buying a HUD Home
Most HUD homes are intended for those with low and moderate incomes, although the price of the home is based on the market price of similar homes in the area. A potential buyer works with a real estate agent, who offers a bid on behalf of the buyer during an "Offer Period." The government usually accepts the highest reasonable bid. Those whose offers have been accepted are typically notified within two business days. HUD does not offer loans directly, but buyers who qualify can get conventional loans insured by the government.
HUD Homes as Rental Properties
While it is possible to buy a HUD home as an investment, they are first offered to buyers who intend to occupy them. After a priority period, any buyer, including a person who intends to rent the house to tenants, can buy the home. Additionally, the department has a special sales program which allows nonprofit organizations and certain government agencies to buy houses at discounted prices to use in local housing or homeless programs.