What Are HUD Homes and How Do You Buy One?

A HUD home is a foreclosed property owned by the U.S. Department of Housing and Urban Development and up for resale. Below, we’ll take a closer look at what HUD homes are and how to find and buy them. We’ll also dive deep into the pros and cons of these properties and how they compare to alternative foreclosures.

What Are HUD Homes?

When someone purchases a home with a HUD-insured loan and defaults on it, HUD eventually evicts the homeowner and puts the home on the market to recoup some of its losses.

HUD homes are sold “as-is,” without warranty that the home is free of any defect, and are often considered “fixer uppers.” A HUD home won’t be repaired before you move in.

But because the home’s appraised value incorporates improvement needs, first-time homebuyers and those with low to moderate incomes may find HUD homes more affordable. As long as you have the upfront funds or qualify for a mortgage, you could purchase a HUD home.

How To Search for HUD Homes

Find HUD homes on HUD’s official website, HUDHomestore.com. The site allows you to filter by state, county, and ZIP code. You can also look for HUD homes within a certain price range or with a specific number of bedrooms and bathrooms.

HUDHomestore.gov reveals successful bids in the past 14 days, so you can get a sense of how much homes are selling for. You’ll also find links to useful HUD.gov resources, like articles on how to buy a HUD home, HUD terms and acronyms, and HUD-approved lenders. In addition, it discusses special HUD programs. 

How To Buy a HUD Home

If you’re interested in a HUD home, here’s what you need to know.

Who Qualifies for a HUD Home?

HUD gives priority to owner-occupant buyers. To land a HUD home as an owner-occupant, you must commit to living in it for at least 12 months, and not have purchased another one in the last 24 months. You’ll have to work with a HUD-approved real estate agent, arrange financing in advance, and put down at least 3.5% if using an FHA loan.

The Process To Buy a HUD Home

To buy a HUD home, you must go through a bidding process with a licensed, HUD-approved real estate agent who can walk you through the process of making a successful bid. There is an initial 30-day period when bids from owner-occupant buyers, nonprofits, and governmental entities are accepted.

With your offer, you provide earnest money, which acts like a deposit. This amount is generally between $500 and $2,000 for a HUD home.

Once this period is over, the HUD will review all the bids and select the one with the highest offer. If the HUD doesn’t believe any offers are high enough, the bidding process will be extended and offered to other buyers, such as investors. Your agent will receive a notice if your bid is accepted.

If your offer is rejected, your earnest money is returned to you. If it’s accepted, any earnest money is applied to the down payment or closing costs. However, be aware that it can be very difficult to get your earnest money back if your offer is accepted. As an owner-occupant buyer, you’ll have to show documentation of specific circumstances such as death, job loss, or illness of a primary borrower.

HUD Home Financing

As with any other home purchase, you can use cash or your choice of financing to turn your dream of owning a HUD home into a reality. You may go for a conventional mortgage, allowing you to put down as little as 3.5%. Or you might choose a government-backed home loan such as an FHA loan, a USDA loan, or a VA loan.

HUD offers special assistance and programs to buyers who are interested in their properties.

The Good Neighbor Next Door program assists qualifying teachers, police officers, firefighters, and emergency medical technicians (EMTs). It offers them 50% off the purchase price of homes situated in revitalization areas.

The HUD $100 down program is available for very specific homes and loans—for example, those appraised at $100,000 or less within designated areas purchased with FHA loans. 

Pros and Cons of Buying a HUD Home

Pros Explained

• Lower cost: HUD homes are priced low, making them more affordable than traditional properties you may find on the market.
• Owner-occupant buyers prioritized: Since the HUD opens its homes to owner-occupant buyers first, you might not have to compete with investors searching for cheap properties they can flip.
• Closing costs might be covered: The HUD may cover closing costs, including recording fees, transfer taxes, and more.

Cons Explained

• Homes sold “as-is”: HUD homes are sold in the condition they’re in and may require a lot of repairs and renovations.
• Selling restrictions: If you purchase a HUD home, you must commit to living in it for at least one year, and you won’t be able to buy another one for at least two years.
• Limited housing supply: Not many HUD homes are available; for example, some states have just one HUD home on the market at any given time. Other states have no homes. This can create a competitive situation to bid if you’re up against investors.

Alternatives To HUD Homes

HUD homes are very similar to other as-is homes or foreclosed properties, but because HUD prefers buyers who plan to live in the home, you may find it easier to land a foreclosed property and save money on homeownership. Also, HUD homes are put on the market by HUD, whereas lenders own traditional foreclosures.

However, depending on your location, you may find far more foreclosed homes available that are not HUD homes.

Should You Buy a HUD Home?

If you’re in the market for an affordable home priced at or even below market value, a HUD property should be on your radar. This is particularly true if you don’t mind fixing it up and making it your own. A HUD home may also be a solid choice if you’re a first-time homeowner or you qualify for a special program. With a HUD property, you can land a great deal and own a home without meeting strict qualification requirements or making a large upfront investment. 

However, you may need to be less particular about location or be willing to relocate. You might not find a HUD home near your current location. You may also need to live in the home while it’s undergoing repairs—it might not be move-in ready.

Frequently Asked Questions (FAQs)