How do I buy a HUD home?
The process of buying a HUD home differs from a
typical residential real estate transaction. In residential real estate,
the buyer finds the home he or she likes with the assistance of a real
estate agent and the agent presents an offer to the seller. The seller
may counter the offer and this process continues until 1) the buyer and
seller find mutually agreeable terms to close the deal or 2) the buyer
or seller rejects the terms and both move on with their lives.
When purchasing a HUD home, the process is through
a sealed bid auction. There are no negotiations between the buyer and
the seller. Rather, the home is sold to the buyer with the highest
netting acceptable bid (i.e. after all costs are paid, it is the highest
net amount that HUD will receive for the home) wins the sale.
As stated before, HUD restricts bidding to
owner-occupant buyers for the first 10 days a HUD home is listed for
sale. During the first five days, all owner-occupant bids received are
considered as though they were received simultaneously. In other words,
all of the bids are opened after the first five days. If an acceptable
bid is not received, bids are then accepted daily by owner-occupant
buyers only. Each day until day 10, the bids are reviewed for an
acceptable bid.
Should a HUD home not sell within the first 10 days
it is offered for sale, HUD will accept bids by investors and
owner-occupants. Bids are reviewed daily without distinction between
owner-occupants and investors.
If the home remains available after 45 days, HUD
may establish a lower list price or minimum acceptable bid.
The bid deadline is 11:59 P.M. on the day of the
bid deadline. Bids are reviewed the next business day to determine
whether an acceptable bid has been received. All bids must be submitted
through a HUD approved real estate agent or broker.
Before a bid can be submitted, the buyer is
required to have on deposit with the real estate broker an earnest money
deposit. Earnest money must be in the form of either a cashier’s check
or money order. If the purchase price is $50,000 or less, the buyer is
required to deposit $500. If the purchase price is greater than $50,000,
the buyer is required to deposit $1,000.
If the buyer’s bid is rejected, the earnest money
deposit will be returned. Should the buyer have an accepted bid and not
be able to buy the home, HUD will return the buyer’s earnest money on
the following conditions:
Owner-occupant buyers: The entire deposit will be
returned if it is requested in writing and adequate documentation is
included when 1) there has been a death in the immediate family, 2)
there has been a recent serious illness in the immediate family that has
resulted in substantial medical expenses, income loss or adversely
affecting the buyer’s ability to purchase the home, 3) there has been a
loss of work by the primary wage earner or substantial loss of income at
no fault of the buyer or 4) there is good cause as determined by HUD.
However, the buyer forfeits 100% of the earnest money deposit when he or
she fails to submit inadequate or no documentation in the situations
listed above. A buyer may be eligible for 50% of the earnest money
deposit when he or she is unable to qualify for a mortgage for an
uninsurable (UI) property.
Investors: The entire earnest money deposit is
forfeited, regardless of the reason. The investor may be eligible for
50% of the earnest money deposit if it is determined that the investor
is an unacceptable buyer of an insurable (IN) property.
Before deciding on which home to bid on, it is
important for the buyer to sit down with his or her HUD approved real
estate agent and discuss a strategy to buy a HUD home. This includes
determining the market potential of the home, what costs (if any) HUD
will pay for the buyer and what price at which to bid.
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