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What are HUD Homes? The Basics
Simply put, HUD stands for the United States Department of Housing and Urban Development. This department is a government agency that works under federal regulations and oversees government foreclosures. HUD homes are acquired by HUD only after a home enters the foreclosure process.
How HUD Foreclosures Come to Be
But not every foreclosed home falls into the category of government foreclosures or HUD foreclosures. HUD homes were properties with FHA insured mortgages from the Federal Housing Administration. Because the mortgage was insured by the government, control of the property reverts back to HUD if an owner defaults on their loan.
HUD Homes: How They Differ From Resale Real Estate
HUD homes are different from resale homes that are on the market in a number of ways. So if you've bought a resale home, expect to see changes in the home buying process, including:
- Entering into a Contract
Another key difference is that the seller is a government agency which has strict guidelines that must be followed. During any step in the buying process if the terms and timelines of the contract are not followed exactly you can lose the HUD home you've got under contract. That is one key reason why having a knowledgeable real estate agent is so important.
Government Foreclosures - Opportunity for Equity
HUD usually tries to sell the properties that they acquire as fast as they possibly can because every month that the mortgage is not paid, they end up losing money. The entire process is built around the attempt to recoup as much money as they can from the foreclosed properties. This equates to serious real estate opportunities for those who understand the foreclosure market.
After HUD takes ownership of the home that has entered foreclosure, they have an appraiser come out and appraise the piece of property. Based on this appraisal price and how much is left to be paid on the defaulted mortgage, HUD will decide how much to list the home for. This information is then released the public so that they can begin bidding on the foreclosed property.
The HUD homes are typically priced below market value which makes it a great option for investors, low income families and those who are just looking for a good real estate deal.
Government foreclosures are listed below market value for two reasons: foreclosed homes have already had their mortgages paid down by the original owners, and because HUD wants to sell the home quickly they will usually take the remainder of what is left on the mortgage or in other words the debt they've acquired from the foreclosed home.
Who Can Buy HUD foreclosures and How
HUD homes usually have between one and four units in them, offering buyers a lot of living and investment options. The best news is anyone can buy a government foreclosure. However, priority is given to evacuees, some professions such as police officers and teachers, as well as buyers that are looking for a permanent residence. Once a property has been offered to these buyers, the properties are then made available to investors.
Once you've found a property that you would like to make an offer on, a real estate agent is a must. Only qualified, licensed real estate agents can get you into the property to see it firsthand and actually put in an offer on a HUD home. Please visit our Agents Page to learn more about working with a real estate agent in your community.
There are a lot of ins and outs when dealing with buying a government foreclosure but the reward of an affordable home is well worth it. Before entering into a contract its best to arm yourself with as much info as possible about the foreclosure bidding process, getting inspections on foreclosures, HUD programs that offer additional savings, and more here.