What is a HUD Home? A HUD Home is a property
with an FHA insured mortgage that has gone into default. The lender
acquires the property, submits FHA insurance claim, and then conveys
ownership to the U.S. Department of Housing and Urban Development
(HUD). HUD will then sell the home through their Asset Manager (AM),
Sage Acquisitions. A HUD Home can be a single family residence
(SFR), townhouse, condominium, mobile home or multiple family
attached home up to 4 units.
Who can buy a HUD Home? HUD Homes may be
purchased by any 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.
There are two main types of HUD Home purchasers: Owner Occupants and
Investors. An owner occupant buyer is a person who will live in the
property as their primary residence for at least one year and has
not purchased another HUD Home as an Owner Occupant within the past
two years. Investor buyers are people who purchase the property as
an investment or as a second home, or who do not qualify as an Owner
Occupant.
How can I buy a HUD Home? If the
buyer is financing the purchase of a HUD Home, HUD first requires
the buyer to be pre-approved for a mortgage in an amount sufficient
to purchase the property. If the buyer is paying cash, the
buyer must provide verification of funds. Once the buyer has
obtained a pre-approval or verification of funds, the buyer should
find a HUD Registered Agent, who can help the buyer find an
appropriate property and submit a bid on it. All buyers must
submit their bids online through a registered real estate agent.
In typical real estate transactions, the buyer finds the home they
like and their real estate agent presents their offer to the seller,
who may counter the offer. The buyer and seller may negotiate
until mutually agreeable terms are reached or until they reject the
terms and move on. When purchasing a HUD Home, there are no
negotiations between the buyer and seller. HUD Homes are sold
by a sealed bidding process, where all interested buyers submit
their best offer online and usually the highest netting bid (after
all costs are paid) wins the sale.
HUD Homes are initially offered for owner occupant purchasers.
Following the owner occupant priority period, unsold properties are
available for all buyers, including investors. Bids can be
submitted any day of the week, including weekends and holidays, and
are opened for review the next business day following the bid
deadline.
What is the Exclusive Listing Period for HUD Homes?
When a HUD Home is first listed for sale, priority is given to owner
occupants, non-profit organizations and government entities. The
duration of this Exclusive Listing Period will vary depending on the
property’s FHA insurability.
If the property is being sold as Insured (IN) or Insured with
Escrow (IE), the Exclusive Listing Period is 30 days for
owner-occupant buyers, non-profit organizations, and government
entities. Bids received during the first 10 days are considered to
be received simultaneously, and the initial bid review is on the
11th day of the Exclusive Listing Period. If there is no winning
bid, bids continue to be reviewed on a daily basis until the
30-day period ends.
If the property is Uninsured (UI) or Uninsured 203(k)
eligible (UK), the Exclusive Listing Period is 5 days for
owner-occupant buyers, non-profit organizations, and government
entities. Bids received during these 5 days are considered as though
they are received simultaneously, and are not opened until the
6th day of the Exclusive Listing Period.
When can investors submit bids? After the
Exclusive Listing Period has expired, unsold properties enter the
Extended Listing Period. These properties are available for all
purchasers, including investors, on a daily basis until an
acceptable bid is submitted.After the 10 day owner occupant priority
period, unsold properties are available for all purchasers,
including investors, until an acceptable bid is submitted.
Bids are opened and reviewed the following business day.
What is the Lottery period? Certain property
eligibilities allow Good Neighbor Next Door participants, HUD
registered non-profit organizations, and government entities to bid
on the property prior to becoming available to Owner Occupant bids.
These properties, which are usually located in HUD designated
revitalization areas, or are in areas determined to be uninsurable,
are available in the Lottery period for 7 days prior to being listed
in the Exclusive Listing Period.
How can I find a HUD Home? HUD Homes are
featured on HUDHomestore.com. They are also featured in the
local MLS.
Can I submit more than one bid for different properties?
If an Owner Occupant submits multiple bids for different properties,
Sage Acquisitions will select and award the bid in the best interest
of HUD. Investors may bid on and purchase multiple properties,
provided they can obtain adequate financing or pay cash.
How can I finance the purchase of a HUD Home?
The buyer may pay cash, obtain FHA financing from a HUD approved
lender or secure conventional financing. Please contact a
mortgage company of your choice for information on common mortgage
programs, qualifying guidelines and how to obtain a mortgage
appropriate for you.
What is FHA Financing? HUD Homes may always
be purchased using cash, conventional, or other special financing.
However, FHA offers financing options that are tailored to HUD
Homes. There are many variables that are taken into consideration
when the disposition of a property is created. The condition of the
property as reflected in the FHA-approved appraisal and the Property
Condition Report (PCR) weigh heavily in determining its
insurability. Once the disposition of the property has been
established, the property is initially listed at the as-is appraised
value and will reflect the financing acronym that is appropriate. It
is vital that real estate agents have a clear understanding of the
FHA financing types, and the corresponding acronyms.
(IN) Insurable, FHA 203 (b) - Properties listed as Insurable
(IN) qualify for FHA 203(b) financing. This disposition represents
properties that do not have obvious Minimum Property Standard (MPS)
repairs. Please note that properties with MPS repairs totaling $250
or less will be listed as IN and will not include those MPS repairs.
(IE) Insurable with Escrow, FHA 203(b) with Repair Escrow -
Properties listed as Insurable with Escrow (IE) qualify for FHA
203(b) with Repair Escrow. This disposition represents properties
that have MPS repairs which must be addressed post closing. The MPS
repairs cannot total more than $5,000, except in cases where the 10%
contingency causes the increase in escrow, and is the financial
responsibility of the buyer. The repair escrow is never a
credit to the buyer. The purchaser must finance the repair escrow
with the lender writing the FHA loan. The lender holds the money for
repairs in an escrow account until they are completed. FHA allows up
to 90 days after closing for MPS repairs to be completed. Once the
repairs have been completed for the property, the lender will
inspect the contractor’s work and disburse the funds to the
appropriate parties.The repair escrow only applies to FHA
203(b) financing. The repair escrow does not apply to financing
outside of 203(b) or to cash purchases.
(UI) Uninsurable - Properties listed as Uninsurable (UI) do
not qualify for FHA 203(b) financing. Typically, these properties
have MPS repairs exceeding $5,000 or may not meet the guidelines for
FHA financing for other reasons. Non-FHA financing and cash
purchases are most often used for properties with the disposition of
UI.
(UK) Uninsurable, 203(k) Eligible - Properties listed as
Uninsurable – 203(k) Eligible (UK) also do not qualify for FHA
203(b) financing. However, these properties may qualify for FHA
203(k) financing. The 203(k) option is a rehabilitation loan for
owner-occupants only. Most lenders offer both the standard FHA
203(k) and the 203(k) streamlined loan.
Please contact any mortgage company familiar with FHA guidelines for
more information on the various FHA financing programs.
Will HUD pay for any closing costs and the selling agent's
commission? HUD will pay up to 3% of the purchase
price in closing costs that are considered to be reasonable and
customary in the jurisdiction where the property is located. Please
review the Forfeiture and Extension Policy addendum to the sales
contract policy for the list of closing costs that will be paid by
HUD.
HUD also allows, and will pay, up to 3% of the purchase price (or
$1,250, whichever is greater) for the selling agent’s commission,
which should be entered on Line 6a of the Sales Contract. Line 6b
denotes the Local Listing Broker’s (LLB’s) commission, which is 3%
of the purchase price or $1,250, whichever is greater.
Please remember that higher closing costs and commissions will
reduce the Net to HUD and may affect the competitive bidding ratio.
Only the selling agent may choose to reduce his/her commission, the
LLB commissions may not be reduced. For more information, please
contact your real estate agent or the listing broker.
HUD does not pay any closing costs or commissions on Good Neighbor
Next Door (GNND) properties. Please note that even though GNND
participants are required to utilize a real estate agent to submit
their bids, HUD will not pay the selling agent commission; however,
if FHA financing is used, the purchaser may add closing costs and
commissions to their loan.
When can I get a home inspection done? All
HUD Homes are sold "As Is." HUD does not make any repairs to the
property. Therefore, it is important that the buyer do a visual
inspection prior to submitting a bid. The buyer is also encouraged
to have a professional home inspection performed with the utilities
activated after the contract has been accepted and signed by HUD.
The buyer has a 15 day period after contract acceptance to activate
utilities and complete the home inspection, which must be
coordinated with the Field Service Manager (FSM) assigned to the
property. Please contact Sage Acquisitions for instructions and
procedures to complete a home inspection.