BUYER(s) - Everything you need to know to purchase a HUD home today.

Consumer Frequently Asked Questions

1. What is a HUD Home?
2. Who can sell HUD homes?
3. Who can buy a HUD home?
4. How can I buy a HUD home?
5. What is Owner Occupant Period?
6. When can an Investor submit a Bid?
7. How can I cancel my Bid?
8. What is FHA financing?
9. How do I determine the mortgage amount when there is a repair escrow?
10. Why do I have to get a Pre-Qualification Letter before I bid?
11. How long do I have to close? What if I need more time?
12. What is Officer/Teacher Next Door Program?
13. What is Firefighter - Emergency Medical Technician Next Door Program?
14. Does HUD have special programs for Non-Profits and Local Government Agencies?
15. Is there anything else I should know about HUD Homes?
16. If an investor or any buyer gets a property awarded but lender does not accept HUD’s appraisal, and their own value comes in lower in another appraisal, can HUD adjust price?
17. If an investor cancels escrow due to property financing because of value not being there, does he/she lose their deposit?
18. What about if property was purchased under Owner Occupancy, will the same rules apply?
19. What if there is someone that does not have a social security number, is there any way for them to still bid?
20. Does HUD accept special powers of attorney?
21. The buyer on this property is a cash paying investor, and they were prepared to close a long time ago. Tuesday we were notified that they are expiring in 10 days.  Are extensions available to investors?
22. Can buyer’s names be changed once a bid has been entered?
23. Is there a “buyer’s remorse period?”
24. What if my offer price is higher than the appraised value?
25. HOW TO Videos

What is a HUD Home?
When someone with a HUD insured mortgage can't meet the payments, the lender forecloses on the home; HUD pays the lender what is owed; and HUD takes ownership of the home. HUD then sells the home at market value through a Marketing & Management Contractor such as HomeTelos, HUD PEMCO and or Matt Martin.

Who can sell HUD homes?
Any licensed real estate agent or broker who is registered with HUD and has a NAID's Number may sell HUD Homes.  

Who can buy a HUD home?
Anyone who can qualify for a mortgage or who can pay cash may buy a HUD home. Owner occupants must live in the house as their primary residence for at least one year and may not purchase another HUD home as an Owner Occupant for two years. Buyers must use a broker or agent who is registered with HUD to place a bid on a property.

How can I buy a HUD home?
Start by finding a participating real estate agent. Your real estate agent must submit your bid for you. Normally, HUD Homes are sold in an "Offer Period." At the end of the Offer Period, all offers are opened and considered to be received simultaneously, and, basically, the highest acceptable net bid is accepted. If the home isn't sold in the initial Offer Period, you can submit a bid until the home is sold. Bids can be submitted any day of the week, including weekends and holidays. They will be opened the next business day. The results of all accepted bids is the responsibility of your real estate agent to check their email for accepted bid information and ensure that all the required forms are properly filled out and over nighted to one of the M&M3 contractors within two business days of acceptance.

How can I find a HUD home?
All HUD homes are listed at www.hudhomestore.com, www.hometelosfirst.com and or can be found on our personal LOCAL HUD listing website at www.ColoradoHUDs.com. To view our current up to date HUD listings please view Aspen HUD Invetory. Our Inventory is updated every week and when new listings come to the market that very day. Please check back frequently.

What is Owner Occupant Period?
When a HUD property is first listed for sale to the general public, bids can be submitted by all potential purchasers, however, it is available to Owner Occupant Purchasers "only" during the initial priority period as specified below. All bids placed by Owner Occupants that are submitted during this priority period are considered to have been received as though they were received simultaneously. If there are no acceptable owner-occupant bids on the last day of the priority period, then bidding becomes available to all purchasers on a daily basis, with no priority given to owner/occupant bids.

When can an Investor Submit a Bid?
When a HUD property is first listed for sale to the general public, bids can be submitted by all potential purchasers (including investors), however, it is available to Owner Occupant Purchasers "only" during the initial priority period as specified above. All bids placed by Owner Occupants that are submitted during this priority period are considered to have been received as though they were received simultaneously. If there are no acceptable owner-occupant bids on the last day of the priority period, then bidding becomes available to all purchasers on a daily basis, with no priority given to owner/occupant bids.

If an Owner Occupant submits multiple bids for different properties, the property that is selected will be the bid that has the highest acceptable Net to HUD for that property.

How can I cancel my Bid?
If you are awarded a property either by Lottery or the General List, and you cannot complete the transaction, you will need to have your agent broker submit the Bid Cancellation Form.

What is FHA financing?
There are three main types of FHA Financing. More information may be obtained from any mortgage company familiar with FHA Guidelines for the various programs.

(1) 203(b) Regular FHA Loan - Listed as "IN"

• If the Property does not have any mandatory repairs FHA will insure the Loan hence the classification of "IN"

(2) 203((b) - Repair Escrow - Listed as "IE"

• When a property has less than $5000 in repairs to bring it up to Minimum Property Standards, FHA will insure the loan provided the repairs are completed by the Buyer or the Buyer's agent within 90 days from the date of Closing.

• It is a cost to the Buyer that the Buyer can finance and add the amount to the mortgage.

• The Lender monitors and keeps the funds in an escrow account for disbursement on completion of repairs to the Lender's satisfaction.

(3) 203(k) - Rehab Loan - Listed as "203K "

• When the property has more than $5000 in Minimum Property Standards repairs to be done.

• The Lender must obtain an Inspection report from an approved 203(k) consultant and a new appraisal.

How do I determine the mortgage amount when there is a repair escrow?
The DE Underwriter will determine the final 203(b) mortgage amount. The DE Underwriter will take into account the repair escrow amount to determine the FHA loan amount. The DE underwriter will determine this amount. Regardless of whether or not a repair escrow will be used in the purchase of a home, the lines on the Sales Contract that request the down payment amount and the secured mortgage amount should be filled in "TBD" (To Be Determined). The line associated with the length of the loan should also be filled in TBD. Please remember that the repair escrow amount needs to be filled in only if the buyer is using 203(b) repair escrow financing. 

Why do I have to get a Pre-Qualification Letter before I bid?
A Pre-Qualification Letter must be obtained prior to bidding on a property. This is to avoid having to tie up the property with a transaction that is unlikely to close. The Pre-Qualification letter must be directly from the lender (NOT the mortgage broker) giving a current date and an amount of the loan that is acceptable. It should also include the name the buyer(s) whose credit report was reviewed and approved by the lender.

How long do I have to close? What if I need more time?
Sales transactions shall close within the timeframe as specified on your state/regional Forfeiture and Extension Policy (Addendum A, Rev 11-13-06). Properties may close in less than the timeframe specified. However, the amount of days specified for your state/regional area MUST be entered on the HUD Sales Contract. If closing does not occur within the timeframe then extension fees will apply. The Broker must submit a written request for an extension regardless of the reason for the delay in closing. The Extension Request Form can be found in the forms section of this website and must be accompanied by the extension fee.
*With one exception, buyers will have 45 days to close escrow regardless of the type of financing they use to purchase the home. If a buyer purchases a home with 203(k) financing, the initial escrow period is extended to 60 days at no additional cost to the buyer.

What is Officer/Teacher Next Door Program?
One of HUD's Special Sales Program under the Good Neighbor Initiatives is the Officer Next Door/Teacher Next Door (OND/TND) program. The OND/TND Programs offers HUD-owned, single family homes that are located in HUD designated Revitalization Areas will be made available to Law Enforcement Officers and Teachers at a 50 percent discount of the last listed price. When a law enforcement officer or teacher chooses to use an FHA-insured mortgage the down payment is $100. When a governmental agency of nonprofit organization is the purchaser, HUD expects that the full discount will be passed on to the law enforcement officer or teacher. Officer Next Door/Teacher Next-Door program participants are required to own and use their property as their sole residence for at least three (3) years. Participants agree to execute a second mortgage and note which will be for the amount of the discount which HUD can call at a later date if the buyer fails to re-certify. During the entire term (3 years), the buyer may NOT own ANY residential real property other than the OND/TND home. Failure to comply with this (or any OND/TND) requirement may result in the remaining balance of the second mortgage becoming immediately due and payable. The officer or teacher must submit a contract bid of 100 percent of the listing price. Winning bidder will be chosen by lottery. The 50 percent discount will be applied at closing. Teachers must be employed in the school district that they purchase a home in under the Teacher Next Door Program. More information on this program can be found at http://www.hud.gov/offices/hsg/sfh/reo/goodn/main.cfm

What is Firefighter - Emergency Medical Technician Next Door Program?
Effective November 1, 2005, HUD announced the eligibility of firefighters and emergency medical technicians to purchase HUD acquired homes located in HUD designated revitalization areas at a discount, in accordance with HUD's regulations for the Officer/Teacher Next Door (OND/TND) Sales Program. Inclusion in the OND/TND program is designed to help more firefighters and emergency responders become homeowners, and will further the goals of the OND/TND Sales Program to accelerate the revitalization of America's cities by promoting the integration of dedicated role models and mentors into the community. 

Does HUD have special programs for Non-Profits and Local Government Agencies?
Another one of HUD's Special Sales Program under the Good Neighbor Initiatives is the Direct Sales to Non-Profit Organizations and Government Agencies. This special sales program under which approved non-profit organizations and government agencies may purchase properties at discounted prices for use in local housing or homeless programs. More information on this program can be found at http://www.hud.gov/offices/hsg/sfh/reo/goodn/main.cfm

Is there anything else I should know about HUD Homes?
More information is available on HUD's website: http://www.hud.gov/offices/hsg/sfh/reo/reobuyfaq.cfm Houses built before 1978 may have lead-based paint which can cause harm to your family; so be sure to read about this hazard and about what you would need to do to correct it. 

If an investor or any buyer gets a property awarded but lender does not accept HUD’s appraisal, and their own value comes in lower in another appraisal, can HUD adjust price?
Absolutely not.    

If an investor cancels escrow due to property financing because of value not being there, does he/she lose their deposit?
YES. Refer to Addendum A. The only guidelines that will allow an investor to get any portion of their earnest money back is if an investor is using FHA financing and the FHA underwriter determines that the investor is not an acceptable borrower, then 50% of the earnest money deposit will be refunded.

As you know, FHA’s loan products are not set up for investor use; so the potential for an investor to receive any portion of their earnest money back is remote.

What about if property was purchased under Owner Occupancy, will the same rules apply?
The Answer is YES, the same rules apply, but if you read Addendum A, you will find that this addendum has many more provisions when it comes to returning all or a portion of the earnest money deposit to an owner occupant buyer.  If the underwriter determines that the value of the property has dropped below the purchase price.

What if there is someone that does not have a social security number, is there any way for them to still bid?
No       

If someone has a social security number, but no legal residency can they buy?
It has been understood that all prospective buyers must be US citizens.     

Does HUD accept special powers of attorney?
Yes        

The buyer on this property is a cash paying investor, and they were prepared to close a long time ago. Tuesday we were notified that they are expiring in 10 days.  Are extensions available to investors?
Investors can file for an extension. If the delays in closing escrow can be attributed to the closing agent, HUD, the extension fees can be waived. If the explanation on your extension requests states that the closing agent has not performed timely, HUD will request that the closing agent acknowledge and verify your statement.

FYI- HUD will not require that their closing agent facilitate anything quicker than a 45 day close. It is frustrating because it is to everyone’s benefit to close the cash deals earlier; but there is nothing HUD can do to move the cash transactions along quicker. Please submit the extension request, citing the reason(s) for the delay.

Can buyer’s names be changed once a bid has been entered?   
You may add or delete as many buyers’ names on the contract, as or presented on the electronic bid. At least one name from the electronic bid must remain on the contract throughout the close of escrow. The one exception to this rule is a spouse; however, you must submit proof with a marriage certificate. If there are multiple owners with questionable FICO scores, a buyer is better off adding extra names to the bid and removing them prior to submitting a contract.  

Is there a “buyer’s remorse period?”        
The two day window between bid acceptance and the delivery of the contract package is the only opportunity the buyer has to cancel bid without placing earnest money in jeopardy.  

What if my offer price is higher than the appraised value?
FHA guidelines will limit the underwriter to insuring the loan for the lower of two values; the offer price or the appraised value (displayed as the As-Is Value). If your offer price is higher than the appraised value, the FHA underwriter will require that your buyer(s) cover the overbid amount with a cash deposit. The buyer(s) will not be allowed to build the overbid amount into an FHA loan.

HUD’s mortgagee letter 2000-27 will require that the FHA UW use the appraisal obtainHUDed by . This mortgagee letter instructs the FHA UW NOT to obtain a new appraisal; nor can the FHA UW request that new comps be pulled and the HUD appraisal updated.

If your offer price is higher than the appraised value and tentative acceptance is extended to you, the options available to you are:

1. Proceed with contract execution. HUD will require that the selling broker verify that the cash reserves are available to cover the overbid amount before we execute the contract.

2. Use cash or conventional financing. All of the guidelines outlined above apply to FHA financing only. A conventional lender will have their own set of guidelines not governed by HUD.

3. Cancel prior to contract execution. If there is an acceptable backup, we will award tentative acceptance to the backup offer. If there are no acceptable backup offers, the property will be relisted.

HOW TO VIDEOS

   I. BECOMING THE EDUCATED BUYER

 II.  THE HUD CLOSING PROCESS

III. All About HUD - How to buy a HUD

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"HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes: utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination; and transform the way HUD does business."

Disclaimer: This page is for informational purposes only. The information contained herein may not be applicable to every situation or jurisdiction and we urge you to consult your professional advisor prior to acting on information contained herein. The content, accuracy and opinions expressed herein are not verified or endorsed by the sponsor hereof. Most of the above information was taken from HUD Home Store.

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