The Complete Guide to Buying a HUD Home

By: Deanna Kane

Established in 1965 under Lyndon B. Johnson as part of the Great Society program, the U.S. Department of Housing and Urban Development (HUD) was created to focus on urban housing issues and create strong, sustainable, inclusive communities and quality affordable homes for all.

As part of their mission to strengthen the housing market and meet the need for quality, affordable homes, HUD sells residential foreclosures, also known as HUD homes, across the country. If you’re looking to purchase a HUD home, keep reading to learn about eligibility requirements, the benefits of buying a HUD-approved home, and what the buying process looks like.

What is a HUD home?

A HUD home is a government-owned house that’s been acquired as a result of a foreclosure on a Federal Housing Administration (FHA)-insured mortgage. When a home that was purchased with an FHA-insured loan is foreclosed on, the mortgage lender can file a claim for the outstanding balance with the FHA. The FHA will pay the claim and transfer ownership of the house to HUD.

Once HUD acquires the home, a field manager is assigned to ensure it’s secure and to provide ongoing maintenance until the bidding process starts. HUD can then sell the home to help recoup financial loss as a result of the foreclosure.

A HUD home is priced much lower than a non-HUD house and it comes with special home buying programs, specifically for law enforcement officers and teachers. HUD will sell homes to other government agencies and nonprofit organizations for as little as one dollar—with the stipulation that it will benefit neighborhoods or create housing for families in need.

Who can buy a HUD home?

To qualify for a HUD home, you need to have the cash for the house or be able to qualify for a loan. HUD homes are sold through a bidding process and are first offered to the highest bidder who plans on using the house as their primary residence. If no bids are accepted at the time of the bidding deadline, the offer period is extended and bidding is opened to all buyers, including investors.

To begin looking at HUD homes, you must work with a HUD-registered real estate agent. Only HUD-registered agents are eligible to represent buyers.

Benefits of buying a HUD home

The benefits of buying a HUD home are mostly financial. Since HUD wants to sell these homes as quickly as possible, the properties are priced well below market value. There are also special buyer incentives in some markets, such as the Good Neighbor Next Door program, which offers a 50 percent discount on homes to community employees (i.e. police officers, teachers, firefighters, and emergency medical technicians) who plan on living in the house for at least 36 months.

HUD homes also have low down payment requirements and allowances that can be used to make repairs or pay closing costs. HUD favors primary residents, so those who plan on using the house as their primary home will likely win the home over an investor.

Risks of buying a HUD home

The biggest risk of buying a HUD home is that it’s sold “as is.” What this means is that what you see with the house is what you get. For example, older HUD homes could contain hazardous materials such as asbestos or lead-based paint, which could lead to serious health concerns if not addressed right away. This reality makes it especially important to order a home inspection before bidding, because the home buyer will be responsible for the costs of all repairs—there’s no room for negotiation.

Another concern to be aware of is if the home was previously used for methamphetamine production. Some states require the sellers to inform potential buyers if the property was used for these activities, but it’s still important to conduct an air quality test in the home inspection—exposure to these chemicals is harmful and a professional cleaning can be costly.

How to buy a HUD home

The first step in buying a HUD home is to find a HUD-registered real estate agent to represent you. You can find a HUD agent through HUDhomes. From there, your agent can show you the HUD properties you want to see.

You can also browse HUD homes for sale on the site and look for available houses by zip code or state. Each listing will include the offer deadline, as well as the asking price and photos. 

Before bidding, find out as much as possible about the home’s history, including comparable HUD sales, tax assessments, previous sales, known damages, or if the house was used for illegal activities.

How to bid on a HUD home

HUD homes are sold through a bidding process during which the offer must be submitted through a HUD-registered agent. For available HUD homes, there’s an offer period where the agents submit the sealed bids. The offers are then opened and reviewed by HUD at the close of the offer period.

HUD typically accepts the highest bid, and if the home still remains unsold, bids are opened as they are submitted. HUD will notify the agent if the bid is accepted and the bidder will receive a settlement day, typically 30–60 days from the date of the accepted contract. HUD then pays a commission to the buyer’s agent.

Financing a HUD home

After determining what you can afford for a down payment, monthly mortgage payment, closing costs, and repair costs, you can begin to shape your offer with the help of your HUD-approved agent. Before submitting a bid, make sure your financing is secured so you don’t risk losing out on the house. 

Note: HUD does not provide direct financing to buyers. Buyers must use cash or obtain financing through a mortgage lender. 

There are a few resources to help finance a HUD home, such as: 

  • FHA-insured mortgage—HUD doesn’t provide direct financing, but it’s possible to qualify for an FHA-insured mortgage to finance the house.
  • FHA 203k loan—This loan helps finance renovations at the time of purchase.
  • $100 down payment program—This program is available for qualifying buyers who will be owner occupants.
  • Good Neighbor Next Door program—This provides a discount to eligible law enforcement officers, teachers, firefighters, and emergency medical technicians who are looking to buy a HUD home.

A HUD-approved agent can work with you to determine the financing option that’s best for your individual situation.

With the right research and planning, HUD homes can be an unbeatable bargain. Visiting the HUD website can be the best first step in learning more about the resources to help guide you through the process of buying a HUD home.

Frequently asked questions

How does one qualify for a HUD home?

You can qualify for a HUD home by having cash available or being approved for financing. Financing should be secured prior to bidding on a HUD home.

What are my financing options with HUD homes?

When figuring out how to pay for a HUD home, you can pay with cash, FHA loans, an FHA 203k loan, or other conventional loans.

Does the FHA offer special discount programs for HUD homes?

Yes, the FHA offers special discounts through the Good Neighbor Next Door program and $100 down program.

Where can I learn about available HUD properties?

You can learn more about HUD properties by visiting hudhomestore.com and working with a HUD-registered real estate agent.

Can I sell my house to HUD?

No, HUD does not buy homes. The homes that come into HUD’s possession are because of defaults on an FHA-insured mortgage.

As a real estate broker, what do I need to know about selling HUD homes?

Real estate brokers must be HUD-registered to be able to show HUD homes. HUD pays the brokers the industry-standard commission for the sale, but the broker needs to insert this wording into the contract.

Should I get a home inspection when buying a HUD home?

Yes, a home inspection is imperative before making a bid on a HUD home.

Is a HUD home worth it?

While there are risks to buying a HUD home, there can also be large financial gains, as well as the security that comes with owning your own home.


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