HUD is the U.S. Department of Housing and Urban Development.
A "HUD Home" is one whose original financing was insured by the Federal Housing Administration (FHA, a part of HUD). If the buyer doesn’t make payments and the lender forecloses on the loan, FHA pays the balance of the loan to the lender. The title to the home reverts to HUD, which then sells it to replenish FHA’s funds, so it can insure new loans for more homes.
HUD homes are initially listed at the "as is" appraised market value. The buyer may offer any price, but HUD will not negotiate and will only agree to offers that provide an acceptable amount. The acceptable amount is not disclosed. The price may be reduced if the home does not sell at the initial price.
It is important to understand that HUD homes are sold in "as is" condition. This means that the condition of the home when you see it is what you will be buying. Some need a little work (maybe carpet and paint) and some need a lot (these are usually bought by investors). HUD makes no warranties, does not guarantee the condition of any home, and does not verify that it complies with any local code or zoning requirements. You must make any necessary repairs after the purchase. HUD may make, or give you an allowance for, major system or safety repairs only if you are purchasing with an FHA-insured loan. It is very important that you get a Home Inspection by a licensed professional prior to closing on the sale to fully understand the condition of the property.
All HUD homes are offered without regard to race, color, religion, sex, national origin, handicap, or familial status. Anyone who is pre-qualified for a mortgage loan may offer to purchase a HUD home. These homes are not exclusively for low-income buyers, but most are regarded as affordable for low to moderate-income purchasers within the market areas where they are located. There is an initial period when only owner-occupants are allowed to purchase, after which time investors may also buy. No employee, relative, or business relation of the Marketing & Management Contractor or its subcontractors may purchase any of these properties.
MAKING AN OFFER
Offers on HUD-owned homes must be made online by HUD-registered brokers. If you want to make an offer on a HUD home, you must bid through a HUD-registered broker. Offers are made via computer through the Internet. The electronic bids are stored in the computer system and, at the appropriate time, calculations are automatically performed to determine the highest net offer to HUD. Remember, HUD does not negotiate, so make your best offer first.
COMPLETING THE OFFER
The highest bid is acknowledged to your broker, who is notified to send in a correct, signed sales contract within 48 hours. If the contract is not received within 48 hours or is incorrect, the home will be returned to the market or acknowledged to the next highest bidder. All acknowledged bids are subject to cancellation if prior sale, electronic error, and other conditions exist. An acknowledged bid does not constitute a sale; only a correct contract that is executed and returned to your broker allows you to proceed to closing.
You can bid on more than one house at a time. If you are the highest bidder on multiple houses, the M&M Contractor will choose the one on which you will be acknowledged as the successful bidder. You will not be able to select which house, so make sure that any home that you submit a bid on is one that you are prepared to close on!
INITIAL LISTING PERIOD
The initial listing period is 10 days. During this time, priority is given to owner-occupants who are buying the home as their primary residence and intend to use the property as their principal residence for a minimum of one year. All owner occupant offers received during the first public listing are considered to be received simultaneously. You should submit your best offer during the bidding period. If the property remains unsold after the initial listing period, it is made available to investors as well, and bids are reviewed on a daily basis. (Investor bids may be placed at any time but are not reviewed until the end of the initial listing period, if the property remains unsold). Bids received at different times during the day will be considered received simultaneously, and the highest acceptable net bid will be acknowledged on the date opened.
In order to be fair to all purchasers, HUD has imposed timetables that must be met or your bid or contract will be canceled and the home returned to the market. Once your bid is acknowledged as the highest net to HUD, your agent must send in a correct contract within 48 hours or the bid will be canceled. Generally, closing must take place within 60 days or less. You will be required to submit proof of financing from a lender or proof of cash to close, along with other items. You should be working with your broker to put the required items in place before you bid on a home, so that you are ready if your bid is acknowledged.
The following are acceptable financing instruments for purchasing HUD houses: Federal Housing Administration (FHA) loans, Veterans Administration (VA) loans (subject to certain restrictions), Conventional loans and Cash.
On behalf of HUD, the M&M Contractor acknowledges the bid that offers the highest net to HUD. However, the bidder must show evidence of the financial ability to close before a contract is entered into. This is to avoid tying up the property with a transaction that is unlikely to close. The pre-qualification letter must be directly from the lender (not a mortgage broker), giving a current date and an amount of the loan that is acceptable. It should also name the buyer(s) whose credit report was reviewed and approved.
When you submit a contract, you must include earnest money in an amount of $500 or $1,000. If you later realize that your transaction will not close, your agent must notify the M&M Contractor as soon as possible so the home can be returned to the market. You may have to forfeit all or part of the earnest money if the sale does not close. If the sale is to an owner-occupant and does not close due to circumstances beyond the buyer's control, the money MAY be returned.
After your contract has been received correctly, it will be signed and returned to your broker along with a contract acceptance letter. The letter will give you 30-60 days to close. Once you are ready to close, you and your broker must schedule the date with the closing agent indicated on the letter, who also receives a copy of your contract.
HUD will pay up to 5% of your broker commission cost. In addition, HUD will pay up to 3% of standard closing costs (plus the closing agent fee and pro-rated property taxes, which are paid separately). These costs may include discount points, loan fees, title costs, surveys, and other items. Remember, however, that the more closing costs you ask HUD to pay, the less the net price to HUD and the less chance your bid will be accepted.
Buyers are warned that all bids must be legitimate. Fraudulent bids subject all parties, including brokers and buyers, to severe penalties under the law. The bid entered is fraudulent if the broker does not have a signed offer by the qualified buyer whose Social Security number will be entered on the bid screen, and who has delivered proper earnest money to hold on behalf of HUD. This warning will be repeated, and certification of a good-faith bid will be required, each and every time a bid is entered.
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