HUD Homes

What happens to a home financed with an FHA-guaranteed mortgage if the borrower defaults? A brisk secondary market exists for foreclosed homes. Anyone with cash or the ability to get a mortgage can buy a HUD home.

In the event of default, the lender receives payment directly from HUD. In turn, HUD repossesses the home and puts it on the market for a quick sale to recoup its costs. The homes are put up for sale at market value, and are sold as-is. HUD will not make improvements to the property, but the price will reflect any improvements that must be made to the home.

Any one of these homes can be a good value, especially for a buyer who wishes to buy a home that needs repair. “Fixer-uppers” can be very inexpensive, and may present a good opportunity to buy a home at low cost. Buyers may also qualify for special HUD incentives, such as allowances for making upgrades, moving expense allowances, or bonuses for early closing. HUD may also pay some or all of the closing costs.

You can find a HUD home through a real estate agent, who will submit a bid to HUD on your behalf. At the end of the initial offer period, the highest reasonable offer is accepted, and if the home is not sold during this offer period, you can still submit bids until the property has been sold.

Although investors often buy HUD homes to fix up and re-sell or rent out, priority is always given to owner-occupants. However, after the initial bid period, if the home has not been sold, bidding is opened up to investors, as well.