An Introduction to HUD and HUD Homes
What is a HUD Home?
The Federal Housing Administration (FHA), which is a part of the Department of Housing and Urban Development (HUD), provides federal mortgage insurance which ensures that mortgage lenders will be reimbursed in the event homebuyers default on the mortgage.
When a lender is forced to foreclose on an FHA-insured single-family home, town home, or condominium because the owner can no longer make payments, the lender can file a claim with FHA for the balance due on the mortgage and convey title of the property to HUD. A HUD Home, therefore, is a one-to-four unit residence acquired as a result of a foreclosure on an FHA-insured mortgage.
So How are HUD Homes Sold?
After a property is acquired by HUD, it goes through several steps at PEMCO and with subcontractors who assist in moving the property through the pre-market process. During this time, the property is appraised, title issues may need to be resolved, and a determination is made about the property’s eligibility for HUD’s discount sales programs.
When a HUD Home becomes available for sale, it is listed on the Multiple Listing Service and on our website www.hudpemco.com. Any HUD registered real estate broker who is properly registered with HUD may show these properties and submit contracts for purchase. HUD Homes are sold through an open selling process.
All HUD Homes are then offered on a priority basis to owner occupant purchasers. Following the priority period, unsold properties are then available to all buyers, including investors.
What are the General Sales Conditions of a HUD Home?
HUD does not provide direct financing to buyers of HUD Homes. Buyers must obtain financing through either their own case reserves or a mortgage lender.
All HUD homes are sold strictly AS-IS. HUD does not make any repairs or provide any warranties on the houses, nor does HUD guarantee the condition of any house, listed FHA-insurable or not. Purchasers must make sure the home is in the condition they are willing to accept.
Understanding "AS-IS"
"As is" means that the Seller (HUD) makes no representations or warranties concerning the condition of the property listed FHA-insurable or not. It also means that the Seller will make no repairs to the property prior to or after the execution of the contract. Purchasers must make sure the home I sin the condition they are willing to accept, and are encouraged to get an independent home inspection on the property before closing. If FHA-insured financing is used, up to $200 of the cost to perform the inspection may be financed into the mortgage.
Safe, Secure, and Marketable
Repairs are not done to HUD Homes, however steps are taken b PEMCO to ensure all properties are safe, secure, and marketable to the conditions as identified by HUD.
While HUD-PEMCO will not for example, paint a home or repair damaged drywall, we will attend to safety hazards, such as a fallen-down rain gutter or missing handrail, and attend to all security issues per HUD’s specifications, such as a broken window or unsecured garage door.
HUD-PEMCO also will take steps to ensure the property is in a marketable condition, as is outlined by HUD, to include maintenance such as lawn cutting, winterization, an initial cleaning and other processes.
Though not attended to by PEMCO, repairs necessary to make the home eligible for FHA Financing will also be identified on the property’s listing, and other repairs noted by the inspector will be identified in the Property’s Condition Report (also on the listing site).
Who can BUY a HUD Home?
Anyone! Generally speaking, anyone who can obtain the financing can purchase a HUD Home. Buyers do not need to attend an auction or sign up for a “foreclosure notification” program, or pay any money to join any other type of mailing list or invitation to participate in the HUD Home Sale Process.
All HUD Homes for sale in California are available for viewing on a free, public-access website. HUD’s official listing site for its properties in California is www.hudpemco.com.
All a buyer needs to do to purchase a HUD Home is find a property for sale on our website, obtain financing, and work with a HUD-Registered real estate agent to submit the buyer’s offer.
Who can BUY a HUD Home?
A buyer will fall into one of three categories:
- Owner-Occupant buyers
- a buyer who will be living in the HUD Home they purchase as their primary residence
- are eligible for priority bidding on HUD Properties (bidding is discussed in the “Bidding Process” chapter of this manual)
- must live in the purchased house as their primary residence for at least one year
- buyer agent must sign an “owner-occupant certification” as part of the sales contract
- may not purchase another HUD property for two years after the close date of their current HUD purchase.
- Investor buyers
- a buyer who is investing in, not living in, the HUD Homes they purchase
- do not receive any priority in the bidding process. Investors are not given any priority in the bidding process
- can purchase as many HUD homes as they want, as often as they want