Guideline to Buying a HUD Foreclosure Property

The U.S. Department of Housing and Urban Development has thousands of foreclosed homes available via auction each day in every state. These homes were acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. All properties are 1 – 4 unit residential properties.

For the individual purchaser HUD divides bidders into three distinct categories.

The first category is Good Neighbor Next Door. This program offers a few selected properties for sale to participants at a 50% discount. Those individuals in law enforcement, firefighting, teaching and emergency medical technician professions are eligible to qualify for the program. The available homes are often in transitional neighborhoods and require a three year occupancy commitment from participant bidders.

The second category is Owner/Occupant. Owner/Occupants are given a 30 day exclusive period to bid on HUD homes before the third category of bidders, the Investor, is allowed to enter the auction. This 30 day exclusive period is reduced to 5 days if the property is uninsurable (meaning it requires more than $5,000 in repairs to be eligible for FHA insurance). Owner/Occupant bidders agree to occupy the home as their primary residence for at least a twelve month period.

The Investor is only allowed to bid on a HUD home if there were no acceptable bids during the period exclusive to Owner / Occupants. The Investor has no special restrictions on occupancy or ownership imposed by HUD.

All HUD homes are sold through HUD approved brokers and all bids must be submitted through HUD approved brokers. Bid results are public information and unlike typical bank foreclosures which can take months, decisions are made the day after bidding periods conclude.

After a bidder is selected the closing process continues much like any other real estate transaction. An added benefit to a HUD purchase is that HUD will cover up to 3% of the buyer’s closing costs. This bonus is available to all categories of bidders.

Most of the homes available through HUD are in low to moderate income neighborhoods although there are select homes with appraised values over $500,000.

For many homebuyers and investors HUD homes offer a tremendous bargain and the open bidding process is a welcome change from dealing with a bank’s time consuming and confusing policies. Whether a buyer is looking for a vacation home in Florida or a duplex in Ohio, a HUD home auction may help save both time and money.