HUD Homes
What Is a HUD Home?
The Federal Housing Administration (FHA), which is a part of the Department of Housing and Urban Development (HUD), provides federal mortgage insurance which ensures that mortgage lenders will be reimbursed in the event homebuyers default on the mortgage. When a lender is forced to foreclose on an FHA-insured single family home, townhome, or condominium because the owner can no longer make payments, it can file a claim with FHA for the balance due on the mortgage and convey title of the property to HUD. A HUD Home, therefore, is a one-to-four unit residence acquired as a result of a foreclosure on an FHA-insured mortgage.
How Are HUD Homes Sold?
When a HUD Home becomes available for sale, usually it is listed on the Multiple Listing Service and on HUD’s home page on the Internet. Any real estate broker who is properly registered with HUD may submit contracts for purchase. Brokers are used because of their expertise in the local residential real estate market and because HUD does not have sufficient staff either to show properties to prospective buyers or to assist in those other aspects of homebuying normally handled by brokers.
Most HUD Homes are initially offered on a priority basis to owner occupant purchasers (people who are buying the home as their primary residence).
Following the priority period, unsold properties are then available to all buyers, including investors.
HUD Homes are offered for sale at fair market value, based on a recent appraisal. Generally, HUD Homes are sold in what is known as an “Offer Period,” during which a potential buyer’s offer must be made. At the end of the Offer Period, all offers are opened and the bid providing the highest acceptable net return to HUD may then be accepted. Following the initial “Offer Period” homes remaining unsold are offered on an “extended” basis which means offers may be submitted any business day. If a bid on one of these homes is acceptable, the broker will usually be notified within 48 hours of HUD’s acceptance of the offer.
HUD does not provide direct financing to buyers of HUD Homes. Buyers must obtain financing through either their own cash reserves or a mortgage lender.
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