Buyers can get real bargains by buying foreclosed homes from the Department of Housing and Urban Development (HUD). Educate and prepare yourself with our guide to buying a HUD foreclosure.
What are HUD homes?
When the government forecloses on a home whose mortgage was backed by the Federal Housing Administration, HUD takes possession of the property. HUD then sells these homes through online auctions to recover the balance of the defaulted loan. HUD foreclosure homes often sell below true market value, offering buyers instant equity.
HUD foreclosure homes appeal to real estate investors, but the first 30 days of the auction are open only to buyers who plan to live in the property. That’s why you need to act quickly if you want to buy a HUD foreclosure as your personal home.
How to buy a HUD foreclosure home
Education and preparation are the keys to success in buying a HUD home.
First, unless you plan to pay cash, get preapproved — not prequalified — for a loan. Prequalification involves a cursory look at your creditworthiness, but preapproval requires a more in-depth investigation of your finances. Preapproval shows that you are serious and prepared to purchase a home.
Next, check the official government listing of HUD homes for sale. You’ll find information there about how to buy a HUD home. The site will also show you HUD foreclosure homes in the area where you’re looking. Make note of the property listing number of each. Read up on the property condition and other details in the addenda pages.
You should also check with the county tax assessor for the sales and tax valuation history of the properties that interest you.
A special word of caution
Unfortunately, HUD foreclosure homes sometimes have previously been used as methamphetamine labs. Many states require sellers to disclose this information, so find out if your state does. If your state has no such requirement, but you suspect the home might have been used as a meth lab, have an environmental specialist evaluate an indoor air sample.
Use a qualified agent
Have a HUD-approved real estate agent assist you with your offer. You can find links to these agents on the HUD page.
Ask your agent to run a list of comparable prices for homes in the neighborhoods of houses that interest you. This will help you determine the best offer. If you ask HUD to pay closing costs, HUD will subtract that amount from your offer price to arrive at the net amount it will receive. The best net price on a property wins the auction, so negotiate wisely.
If you intend to live in the house, bid during the first 30 days of the auction so that you are not competing against investors with more capital available to win deals.
HUD sets a deadline for bids, and you will know the outcome of your offer within two days of that deadline.
Related – Purchasing a House at a Property Auction