Buying a HUD property can be a great way to acquire your first home. A HUD Home is a one to four unit single-family residence, condominium or townhome that has been conveyed to HUD by a lender as a result of foreclosure when the original borrower defaults on an FHA-insured loan. HUD in turn sells the property at “AS IS” market value based on a recent appraisal. HUD homes vary in price, location, and condition. Some are in move‐in ready condition and others are not.
There are four different types of HUD homes.
- First an “IN” category defined as an insurable property
- Second an “IE” category defined as an insurable property with a repair escrow
- Third an “UI” category defined as an uninsurable property
- Fourth an “UK” Uninsurable, 203(k) Eligible defined as an uninsurable property but may qualify for an FHA Rehab loan
Depending on which category a property falls into, will dictate the type of financing you can use.
There are three major differences in buying a HUD home. They are purchase limits, extension fees, and approved realtors.
When writing an offer on a HUD home, any amount you offer above the list price must be paid in cash. The reasoning behind this is that HUD has an appraisal done on the property before they put it on the market. So in theory, anything you offer above list, you would be paying above fair market value. A bank will not lend you more than the property is worth, hence why you have to make up the difference in cash.
Also, for every day you go past your closing date, HUD will charge you a per diem fee. This daily fee ranges between $10-25/day depending on purchase price, so you’ll want to make sure that the lender you choose for your financing will be able to close in the allotted timeframe.
Lastly, only realtors approved by HUD can assist you in buying a HUD home. HUD will not work directly with buyers, and only approved realtors with NAID numbers can write a HUD offer for you.
These are only the three biggest differences in buying a HUD home versus a standard property, there are smaller details to be aware of as well. These may not be a big deal based on your scenario, but it’s still important to be aware of them. If you’d like to gather more information on the home buying process, go to our Calendar/Reservations page and reserve space in one of our Home Buyer workshops.
If you would like to search for HUD homes, visit HUDHomeStore.com.
