Decoding the Lingo: What is a HUD (owned) home?

HUD stands for Housing and Urban Development which is a part of the United States Federal government (currently overseen by Alphonso Jackson (and to transition to Shaun Donovan in January, 2009), who sits on the President’s Cabinet).  HUD homes are government owned properties that are for sale by the government using a bidding system outside of the standard buyer/seller multiple listing service (or MLS).

The government acquires many of these properties through foreclosures on loans that they guaranteed through the Federal Housing Authority (FHA).  In times when foreclosures continue at reasonable levels, these properties tend to have significant wear and tear, and many times, significant damage.  In our current market, foreclosures levels are unusually high, and the condition of some foreclosures can be much better than typical.  In the bidding process for HUD homes, your licensed Real Estate Agent submits a price bid to HUD for a property.  After the bid-acceptance deadline (varies by property) your agent will be notified via email if your bid was accepted.  If your bid is accepted, you will close on your new HUD home 45 days later.

One major difference between buying HUD vs. buying on the “open market” or bank-owned home is that HUD requires you to already have funding prior to submitting a bid.  This means you need more than a pre-qualification letter from a lender, you need an approved loan from a lender and documation of available funds.  Also, if you have to extend your closing date for any reason, you will be fined a significant amount of money (currently $375 for each 15 day increment).  Another difference is the way closing fees are typically split between buyer and seller in a normal transaction. When buying a HUD home, who pays the closing fees is not negotiated, and of course, the buyer pays for all of them.  It may seem obvious, but just to be clear, all HUD purchases are bought “as is.” While you can inspect to heart’s content, the government orders (and pays for) an appraisal and an inspection, and discloses those to you through your agent. They don’t make repairs for you.

For more information, check out the HUD website.  The HUD website has a pretty good FAQ on buying HUD homes here.