Buying FHA Foreclosed Homes


House with foreclosure signWhat is a HUD home?

A HUD home is a one to four unit home (or condo) that was financed with an FHA insured mortgage. When an owner fails to make the monthly mortgage payments, the mortgage lender forecloses on the homeowner. After the bank takes back the home, the bank will seek reimbursement from Federal Housing Administration (FHA) on the loss. In other words, HUD/FHA will buy out the bank and take ownership of the house. FHA is a division of the Department of Housing and Urban Development, also known as “HUD”. After HUD takes ownership of the home, the FHA will attempt to sell the property through an online auction. FHA foreclosed homes are commonly called "FHA HUD homes".

How to find HUD homes?

The Federal Housing Administration has made it easy to find the HUD homes for sale. This link > FHA Foreclosures, will open a new window in your browser for a list of HUD foreclosures available in all states.

How do I buy an FHA foreclosure?

The first step to purchasing an FHA foreclosure or any house for that matter is to seek out a mortgage company for preapproval. The mortgage broker (or banker) will determine the maximum sales price. The mortgage broker or loan officer will give you an estimate for the down payment, closing costs and mortgage payment. The mortgage lender will also review your credit report and credit score. After the loan officer pre-qualifies you for a home loan, you will need to seek out a real estate broker or agent who is registered with HUD (FHA) to submit your bid on the foreclosed home. Realtors® are used because of their expertise in the local residential real estate market and because HUD does not have sufficient personnel to show properties to prospective buyers or to assist home buyers in other aspects of home buying normally handled by real estate agents. HUD pays the real estate broker's commission for their service.

Owner Occupant: Eligible owner occupants are individuals who have not purchased a FHA foreclosure within the past two (2) years. They can bid on homes in the Exclusive or Extended periods. Owner occupants rank above government agencies and nonprofits organizations in the bidding process for Exclusive and Extended listings.

How do I bid on a FHA foreclosure?

Your offer for the home is made online by the real estate agent. HUD (FHA) requires the agent to submit a mortgage preapproval letter from the mortgage company attesting to the probability of receiving a mortgage. If you intend to purchase the home with cash (no mortgage), the agent will request documentation to substantiate a cash purchase. HUD’s sales contracts must be used to submit the bid. Home buyers must meet HUD’s criteria and timeframes to close.

The agent will request an earnest money deposit of $1,000 or $500 based on the offer price when you make your bid. If your bid is rejected, your deposit money will be returned to you. If the FHA accepts your bid, you have 24 Hours to have the signed sales contract and all paperwork turned into the HUD office.

From there, a settlement date is established. This date is generally 30 to 60 days after the date the contract is accepted. In the event that the HUD office does not have everything required in 24 hours, the home goes back up for bid.

Current FHA Mortgage Rates

Emoticon with a magnifying glassHome inspections for HUD homes:

The Federal Housing Administration does not warrant or guarantee the condition of its properties and will not pay for the correction of defects or repairs. Since the new owner will be responsible for making needed repairs, HUD strongly urges every potential homebuyer to get a professional inspection prior to submitting an offer to purchase. All FHA foreclosed 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. .

FHA loan on a HUD home

Money counting machine

The FHA & HUD do not provide direct financing to buyers of FHA HUD homes. Home buyers must obtain financing through a mortgage lender or pay cash.


Can investors buy HUD homes?

Yes! During the first 10 days that a FHA foreclosure is listed for sale, only owner-occupants are permitted to place bids; if a successful bid is not accepted by the time the initial priority period has elapsed, bidding is opened to investors as well.

Current FHA Mortgage Rates

HUD Homes and Closing Costs

HUD/FHA will pay for typical closing costs up to 3 percent of the sales price if requested in the sales contract & online bid. HUD/FHA will also pay the closing or settlement agent or attorney fee if the buyer uses HUD approved closing agents. HUD & the FHA will not pay the down payment on HUD homes. As stated previously, HUD will pay up to 5 percent for broker commission.

The FHA charges mortgage insurance (FHA Funding Fee) on loans made using the program. If a borrower defaults on the loan the FHA uses the money from the mortgage insurance premiums to compensate the mortgage company or bank (in other words, bails the lender out). HUD/FHA take ownership of the home and attempt to sell the home as quickly as possible. FHA owned homes are commonly called “HUD homes”.

Current FHA Mortgage Rates

Frequently Asked Questions About HUD Homes

► Can first time home buyers buy HUD homes?

Yes. Get pre approved by a good lender and then find a qualified real estate agent to handle the transaction.

► Can investors buy HUD homes?

Yes, see above

► Do HUD homes pay closing costs?

Yes, see above

► Do you have to bid on all HUD homes?

Yes

► Do you have to pay closing costs on HUD homes?

Yes.

► Is there a down payment for HUD homes?

The word down payment usually refers to a mortgage. If you are using a mortgage to finance the purchase, you may need a down payment. When you bid on a HUD home, you are required to pay a deposit with your offer. If you do not win the bid, the deposit is returned. See above