This is the next post in my series which describes what buyers need to know when purchasing a distressed property or foreclosure in Dayton, Ohio. My previous post discussed the distressed property inspection process and how it differs from buying a more typical, “turnkey” property. When buying a foreclosure, the entity selling the property may have an impact on the buying process. I will write several posts, addressing the different sellers who may be behind a property, and why it is important to know who you are purchasing the property from. In this post, I will discuss purchasing a home from HUD, and why it is important to review all of the rules prior to making an offer.
The process of buying a HUD home
HUD is an acronym that stands for the U.S. Department of Housing and Urban Development. HUD houses are sold when a property owner defaults on an FHA loan. FHA, or the Federal Housing Administration, is a part of HUD. Many first-time home buyers take advantage of an FHA loan, because the down payment and lending requirements are less than a conventional loan. Homes that are sold using an FHA loan are required to be in “good” condition for the loan to be approved, meaning that there are no immediate safety or habitability concerns at the time of closing.
If a property owner defaults on an FHA loan, HUD will often end up being the entity responsible for reselling the property and attempting to recoup as much loss as possible. HUD homes are very desirable because the properties are often in fairly good condition for a foreclosure, due to the original FHA loan requirements. HUD homes are often also priced below market value, in order to encourage a fast sale.
When a HUD home is put up for sale, it is often put on the market by a local broker, however, the buyer will deal almost exclusively with HUD by way of the HUD website. You may find the HUD inventory per state, basic inspection and condition information for each home, and the rules for bidding on a HUD home on their website. Rules for HUD are very strict and must be abided by. When a HUD home is listed for sale, there is generally a 14-day period in which only home owner occupants, non-profits, and government groups may bid on the home. There is usually a count down on the property listing page that lets you know where the property is in the process. Investors may not bid on a house they do not plan on living in, and both the investor and brokerage will be strictly penalized if they are found to have broken this rule. Once the initial period is up, if the property is not yet sold, HUD may release it to investors who are interested. Investors who have a real estate license or are related to a licensed real estate agent, or who are related to a HUD employee may not purchase a HUD home.
After the initial waiting period, property bids are reviewed daily. A buyer may make a bid through a real estate agent, who works for a broker that is qualified to bid on HUD homes. For the offer, the buyer will need to provide their bid amount, how the property will be financed, if they require closing costs, how many days for inspections they require, and when they wish to close on the property. They will also need to provide a proof of funds and their social security number. Investors should keep in mind that a significant number of HUD homes receive multiple offers, and the winning bid is often over asking price and a cash deal. HUD is both looking to make as much money as possible and to get their property off of their books quickly. Rehab loans may not be viewed as favorably as a cash offer.
When HUD has accepted a bid, they will not contact buyers who made unsuccessful bids. The property will simply disappear from the website. The HUD website is the most up to date place to check the status of a HUD property. If a buyer’s offer is accepted, HUD will send the buyer and their agent a formal purchase contract to fill out and sign. The process then moves like any other purchase. All liens, back taxes and water bills will be brought current prior to closing and the buyer can acquire the property with a clear title.
Dayton residents may contact a real estate agent regarding the buying of HUD properties
If you are interested in purchasing a HUD home, it is important to contact a real estate agent who is familiar with the HUD rules and procedures. As a Dayton realtor, I am able to assist with such properties. Contact me today for assistance.
I also service the areas of Beavercreek, Centerville, Cincinnati, Clayton, Englewood, Oakwood, Fairborn, Harrison Township, Huber Heights, Kettering, Miami Township, Miamisburg, Riverside, Springboro, Trotwood, Vandalia, Washington Township, West Carrollton, and Xenia.
Note: Nothing in this article, or on this website should be construed as investment or financial advice. The opinions shared on this website are the personal, and not professional, opinion of the author and are not associated with Keller Williams Advantage. Any investment decisions should be made after consulting with a certified financial/investment professional.