(LoanSafe.org) – HUD homes are 1-to-4 unit residential properties that are acquired by HUD through foreclosures on an FHA-insured mortgage. Through the process of foreclosure, HUD acquires these properties and then offers them for sale in an attempt regain losses from the default.  

Typically, HUD homes must be bought as a primary residence (borrower chooses this as their main home and not an investment). However, following the priority period after HUD acquires the home, unsold properties can be bought by additional buyers such as investors. HUD homes are also designed to assist Hurricane and disaster victims in search of housing.

These properties are generally cheaper then traditionally sold homes and HUD will sell them to the highest bidder. If the home remains unsold for a certain amount of time, more buyers will be allowed to make bids. These additional buyers might have an alternative reason for buying other then to have the home as a primary residence, such as an investor.

When your bid is accepted, your agent will be notified within a day or two. Your settlement date will typically be within 30-60 days from the date of your accepted contract.

HUD has addressed that they do not pay for repairs on their properties following inspections. All owners are responsible for making needed repairs, therefore, HUD homes are sold as is. This is why HUD urges potential buyers to order a home inspection themselves prior to submitting any offer.

Homebuyers who are interested in buying a HUD home which may be classified as a “fixer-upper,” can apply for a FHA 203 (k) Rehabilitation Loan. However, when the homebuyer desires to buy a property in need of repair, the borrower will typically have to acquire financing first. This includes financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with permanent financing. Interim financing will often come with high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation, with long-term fixed, or adjustable rate mortgage loans.

When it comes to financing, borrowers need to do their own research to determine the best options available. HUD doesn’t offer direct financing for HUD homes. You still must go through a mortgage lender, or obtain an FHA mortgage loan.

HUD homes will vary from location to location. They are appraised, and then priced at fair market value for their location. For a fixer upper, the price is lowered to show the homeowner the extra investment that is going to go into buying the home.

Certain professions allow you to get properties at discounted prices.  Law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local government workers, may have access to FHA REO properties located in designated Revitalization Areas.

Potential home buyers and borrowers can go to the FHA Resource Center to find out more about various mortgage programs.