Buying a HUD Home
When someone with a Federal Housing Administration (FHA) insured mortgage can't meet the payments, the lender forecloses on the home: FHA pays the lender what is owed; and then the United States Department of Housing and Urban Development(HUD) takes ownership of the home. Then HUD sells it at market value as quickly as possible. Michaelson, Connor & Boul, Inc. (MCB) is a marketing and management contractor for HUG 1 to 4 residential properties. MCB maintains and sells these properties in accordance with HUD guidelines. We know you may have several questions regarding the purchase of a HUD property. We want to provide you with as much information as possible to assist you with your purchase.
Who can purchase a HUD home?
Any individual who can qualify for a mortgage or who can pay cash may purchase a HUD home. Purchasers must use a broker or agent who is registered with HUD to place a bid on a property. Purchasers must also have a pre-qualification letter from a lender or proof of cash funds in the amount of or greater than the property they are purchasing.
How are HUD homes sold?
All HUD homes are listed on our website at their "AS-IS" fair market value. Purchasers (with the exception of special program purchasers) must obtain the services of a HUD registered real estate agent. Agents may submit bid on HUD properties on behalf of their buyers. The bid that meets the acceptable threshold and has the highest net to HUD receives a provisional bid acceptance subject to receipt of all required documents. Once a bid is accepted an original SALES CONTRACT PACKAGE must be submitted to MCB with in 48 hours.
How is Fair Market Value Determined?
Fair Market Value is determined by a licensed FHA appraiser. Copies of the FHA appraisal s are available to the lender by request after a property is under contract. If a property is exposed to the market without any acceptable offers then a reduction of the listed price may occur.
Does HUD make any repairs to the property?
NO. All HUD properties are sold in their "AS-IS" condition. There are no representations or warranties, expressed or implied, on any HUD properties. HUD does not guarantee the condition of any property, FHA-insurable or not, nor whether it meets local codes or zoning requirements. Purchasers are advised that there may be code and /or zoning violations on these properties and that it is the responsibility of the purchaser to identify these violations. Buyers are very strongly encouraged to have homes inspected by a qualified home inspection company to satisfy themselves as to the condition of the property at the time of sale.
Access to the Property
Owner occupant and Investor purchasers MUST be accompanied by a broker or agent when viewing any HUD home listed for sale. Buyers may not enter a house without their broker/agent for any reason prior to closing. Brokers and/or agents must accompany any individual performing services such as home inspections, appraisals, or certifications. Brokers and agents may only use their keys for their own legitimate use. Keys are not permitted to be lent to any other individuals associated with any sales transactions.
Repairs, Improvements, or Occupanccy Prior to Closing
No work is to be done to ANY HUD property prior to the close of the transaction. An accepted bid is NOT a transfer of ownership. Purchasers do not own the home until it is recorded in their name. Purchasers may not use the home for storage of personal items or occupy the premises under any circumstances. Occupying or working on a HUD home prior to the close will be treated as trespassing. Failure to abide by this policy can result in the cancellation of the sale transaction, forfeiture of the earnest money deposit and may also involve suspension of bidding privileges for the selling agent and brokerage firm.
Types of Purchasers
Anyone can purchase a HUD property. There are two types of general purchases: Owner Occupants and Investors/ There are also several special programs for purchasers who qualify.
Owner Occupant Purchasers
An Owner Occupant Purchaser is a purchaser who will be living in the property that they intend to purchase. The following regulations apply to owner occupant purchasers:
1) Must certify that they will live in the property as their primary residence for at least 12 months.
2) Must certify that they have not purchased a HUD owned property as an owner occupant purchaser(regardless of financing type) within the last 24 months.
The Owner Occupant Priority Period
All new property listings have an owner occupancy priority period in which only owner occupant purchasers will be considered. This period is the first 10 days that the property is listed on the Internet. (some cities have extended owner occupant periods- this information would be noted on the Property listings on the website). If a contract is cancelled and the full 10 days of the market have not been fulfilled, the property will be offered exclusively to Owner Occupants until after this period has been completed. Price reductions are sometimes made on properties and for 5 days after a price reduction preference will be given to owner occupant buyers. Bids by investors will NOT be considered until the final day of the owner occupancy period.
Investor Purchasers
An investor purchaser is a purchaser who does not intend to live in the property being purchased as a primary residence. An investor may purchase a HUD property to re-sell, rent or lease the property after the settlement with HUD has been completed. Investors purchaser also include a purchaser who is buying a HUD property as a second home and does not intend to occupy the property as their primary residence.
Officer Next Door Participants
A person qualifies as a law enforcement officer for the purposes of the GNND sales program if the person is (a) employed full-time by a law enforcement agency of the federal government, a state, a unit of general local government, or an Indian tribal government;and (B) In carrying out such full-time employment, the person is sworn to uphold, and make arrests for violations of federal, state, tribal, county, township, or municipal laws. The person must agree to live in the home as his/her sole residence for the duration of the owner-occupancy period. Neither the person (nor his/her spouse) may have owned any residential real property during the year prior to the date of submitting a bid on the home being acquired. Neither the person nor spouse my have ever purchase another home under GNND sales program or under the OND/TND sales programs. Additional details and rules may be found in the program regulations (LINK)
Teachers Next Door Participants
A person qualifies as a teacher for the purposes of the GNND Sales program if the person is:
(a)Employed as a full-time teacher by a state-accredited public school or private school that provides direct services to students in grades pre-kindergarten through 12;and
(B) The public or private school where the person is employed as a teacher serves students from the area where the home is located in the normal course of business.
The person must agree to live in the home as his /her sole residence for the duration of the owner-occupancy period. Neither the person (nor his/her spouse) may have owned any residential real property during the year prior to the date of submitting a bid on the home being acquired. Neither the person nor spouse may have ever purchased another home under the GNND sales program or under the OND/TND sales programs.
Additional details and rules may be found in the program regulations.
Firefighter Next Door Participants
A person qualifies as a firefighter for the purposes of the GNND sales program if the person is employed full-time as a firefighter by a fire department or emergency medical services responder unit of the federal government serving the area where the home is located.
The person must agree to live in the home as his/her sole residence for the duration of the owner-occupancy period. Neither the person (nor his/her spouse) may have owned any residential real property during the year prior to the date of submitting a bid on the home being acquired. Neither the person nor spouse may have ever purchased another home under the GNND sales program or under the OND/TND sales programs.
Emergency Medical Technician Next Door Participants
A person qualifies as a Emergency Medical Technician for the purposes of the GNND Sales program if the person is employed full-time as a firefighter by a fire department or emergency medical services responder unit of the federal government, a state, unit of general local government, or and Indian tribal government serving the area where the home is located.
The person must agree to live in the home as his/her sole residence for the duration of the owner-occupancy period. Neither the person (nor his/her spouse) may have owned any residential real property during the year prior to the date of submitting a bid on the home being acquired. Neither the person nor spouse may have ever purchased another home under the GNND sales program or under the OND/TND sales programs.
Approved NON-Profit Agencies
HUD-approved Non-profits receive a discount on purchasing HUD properties. This discount is between 10% and 30% off the purchase price of the property and is based on the insurability and location of the property. The non-profit agency must be a HUD registered non-profit agency to qualify for the discount for more information on how to become a HUD approved non-profit.
Government Agencies
HUD is offering local governments the opportunity to take advantage of a unique HUG resource-HUD homes for sale-at a bargain rate of $1, plus closing costs. The new Dollar Homes Initiative will allow local governments to purchase select HUD homes for sale for $1 and use them as part of a community revitalization or neighborhood affordable housing strategy. The HUD homes available under this new program are those that have been on the market for six months or more. Local governments can partner with local non-profit home owndership organizations or tap into existing local programs to resell the homes to low- and moderate-income. In these cases, the local governments will be required to purchase these properties and convey it to the non-profit organizations for rehabilitation and resale to first-time home buyers. Hundreds of properties are available currently and new houses will be added on a weekly basis.
FINANCING
HUD does not provide financing for the purchase of HUD properties Properties can be purchased by obtaining FHA financing, conventional or non-FHA financing, or by paying cash. Regardless of the type of financing you may obtain, the Sale Contract Package requires a pre-qualification letter from a lender or verification of cash for a purchase. Therefore, it is important that you speak with a lender prior to submitting a bid. I have access to lenders I have used in the past and trust completely.
FHA Insured Loands
203(b) Regular FHA loan- listed as "IN"If the properties does not have any mandatory repairs FHA will insure the loan
203(b) Repair Escrow-Listed as "IE"
When a property needs less than $5,000 in repairs to bring it up to minimum property standards, FHA will insure the loan provided the repairs are completed by the buyer or the buyer's agent within 90 days from the date of closing. It is a cost to the buyer that the buyer can finance and add to the mortgage. Then lender monitors and keeps the funds in an escrow account for disbursement on completion of repairs to the lender's satisfaction.
203(K) Rehab loan as "IK" or "UI"
The property has more than $5,000 in minimum property standards repairs to be done. The lender must obtain an inspection report from an approved 203(k) Consultant and a new appraisal. Contact your lender for specific costs and details.
Overbidding the list price with FHA financing
All HUD properties are listed with FHA "AS-IS" appraised value. If you are obtaining FHA financing and have bid more for the property then the appraised value then the difference must be paid in cash. This is because FHA will not insure a loan for greater than the appraised value of the property. The purchase price for the property cannot be changed after the bid has been accepted.
Conventional Financing or CASH
Any non-FHA (including VA) is considered a conventional loan. Conventional loans are not insured by the Federal Housing Administration. If a purchaser is paying cash for a property then a copy of a bank statement or a letter from the bank is required as part of the sales package.
If you have any further questions, please contact Felipe Crook at 1-866-589-1646, or email with any questions by filling out the form below.
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