You submitted a bid on a HUD home and were thrilled to find out the agency accepted it. HUD homes can be tremendous bargains, but being foreclosures, they can come with a long list of repairs. You probably already have a plan for the work that needs to be done on the home, you just have to know what the next steps are once Housing and Urban Development has agreed to the price you offered.
You'll have 15 days after your bid is accepted to get the home professionally inspected. Your real estate agent can obtain the HUD guidelines for these inspections for you. Plumbing, electrical and property inspections will give a clear picture of the condition of the property. If the repairs turn out to be more extensive than HUD's Property Condition Report listed them to be, you won't be obligated to the sales contract and your deposit will be refunded.
If you don't have the money to pay for the HUD home you bid on, you can get any type of loan on it that you qualify for. Qualification when buying a HUD home is the same as with any other property; you'll still have to get a credit check, the home will have to be appraised on its "as-is" condition to assure the mortgage company that it isn't lending more than the home is worth. The entire loan package will still have to go through the underwriting process.
Once your bid on a HUD home is accepted, you'll have to pay a down payment on it. If you won't be taking out a mortgage, you pay the down payment up front before the sale is completed. Typically, this is 3 percent of the sales price. That can differ, though, if you're taking out a loan for the home, and will depend on what type of loan you're getting. If necessary, a relative can give the down payment as a gift, but it must be proven to be a gift and not a loan if you'll be financing the balance due on the home. Usually all that's required is a letter from the relative confirming that the money is a gift and that repayment is not expected.
HUD wants to sell homes to people who will occupy them. If you placed your bid during the first 31 days of the listing, you'll be expected to live in the home for at least 12 months after closing on it. You'll be free to move out and rent it after that time, but you'll be required to sign a binding statement that says you agree to live in the home as your primary residence for that first year.
Closing on a HUD home is very similar to closing on any other home. A title company or real estate attorney will set up the closing process and much of the paperwork is the same. If you are financing the HUD home, closing is the time you pay your down payment and loan funds are paid to the Housing and Urban Development. "The Big Book of Self-Reliant Living" published in 2009 advised that you'll pay the usual buyer's portion of the closing costs, such as points you may have agreed to pay for your interest rate and the mortgage insurance premium if you are financing the home, as well as homeowners insurance and property taxes. In some circumstances HUD is willing to pay for the buyer's closing costs as part of an incentive program on your home. Your real estate agent can tell you ahead of time if such an incentive is offered on your property.
Some HUD homes are in near-perfect condition while others can come in varying levels of disrepair. Once HUD accepts your bid and the purchase of the home is final, it's time to get started on the repairs. HUD will not have taken care of winterization, de-winterization or the utilities, so these will be top priority. Afteryou restore utilities to the property and appropriately prepare the home for the season, you can take on the rest of the repairs one at a time and as your budget allows. You can do many things like painting or installing flooring yourself, but might need to contact a professional contractor for other issues such as repair work to the foundation.
- Metrowest Real Estate Services: HUD Bidding/Winning Procedures
- How to Buy Your First Home: Diana Summers
- Foreclosure Investing for Dummies: Ralph R. Roberts, Joe Kraynak
- The Big Book of Self-Reliant Living: Edited by Walter Szykitka
- Terri Small: Escrow Manager, First American Title Company, Pocatello, Idaho
- Thinkstock Images/Comstock/Getty Images