HUD may hold the keys to your home or investment property

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Each year, FHA insures hundreds of thousands of new mortgage loans. (The total number of these outstanding FHA mortgages runs into the millions.) When FHA borrowers fail to repay their lenders as scheduled (absent a successful workout), the owner of the mortgage will force the property into a foreclosure sale. Then (speaking generally) the lender turns in a claim to HUD (FHA's parent). HUD pays the lender the amount due under its mortgage insurance coverage and acquires the foreclosed property. HUD puts the property, along with all the others it has acquired, up for bid to the public.

In cities such as Atlanta, HUD may sell as many as 1,000 properties a year. In the San Francisco Bay area, HUD's annual sales may total fewer than 150 homes. Depending on the strength of the housing market and the local economy, the number and selection of HUD properties vary widely. Still, every area offers at least some HUD homes. To locate HUD properties, go to and then click on HUD homes. Go to the state and county that interests you.

Like all sources of bargain prices, HUD homes don't present a sure thing. You can't bid blindly and expect to land a great buy. You first must research neighborhoods and property values. Only then can you confidently buy properties for substantially less than their market value after fix-up work.

Although HUD is best known for single-family houses, it also sells these types of REO properties:

  • Vacant lot
  • Duplex
  • Triplex
  • Fourplex
  • PUD, a Planned Unit Development
  • Condominium
  • Apartment buildings (financed by HUD-insured loans for investors who operate low- to moderate-income rental housing)

To buy a HUD property, submit a bid package to HUD according to set procedures. Violate a rule, and your bid package is tossed out. That's why you need a foreclosure pro. After HUD opens the bid package, it accepts the bid that nets HUD the most money—except that homebuyers receive priority over investors—even when the investor submits a bid that HUD thinks superior. HUD sets bid deadlines that give homebuyer first chance. If no sale results, HUD opens the bid process (but not HUD financing) to investors. HUD also uses a bid package and set bidding procedure to sell its REO apartment buildings.

Financing Programs and Incentives

Ordinarily, homebuyers can finance HUD homes with FHA-insured financing and pay 3 to 5 percent cash out of pocket. Although these cash payments are typical, HUD sometimes runs low- or no-down-payment "specials." Several years ago, HUD-owned, FHA-insurable properties throughout the state of Georgia were offered with just $300 down. Check with HUD-approved real estate sales agents in your area to see what deals HUD may be brewing. If the coming years bring forth the increased number of foreclosures that forecasters predict, HUD may enhance its deals and buyer incentives.

Other Incentives

In addition to low- or no-down-payment specials, local HUD offices may run other types of incentive programs for buyers of HUD properties. To encourage quick closings during a market surplus in Indianapolis, HUD offered a $2,000 early closing bonus (less than thirty days) to investors and homebuyers. In Chicago, HUD offered a rebate up to $1,000 to renters who buy a HUD home for owner occupancy. In Boston, HUD offered a 5 percent purchase price credit on certain designated properties, a $250 bonus to buyers who had arranged a lender's preapproval, and a $675 early closing bonus (less than 45 days). In Baltimore, the early closing bonus was $900, but settlement had to take place within 15 days of contract acceptance. On occasion, to reduce its inventory of unsold homes, HUD offers clearance sales at deep discounts. Some years back in Houston, HUD ran a huge "Turkey Day" sale on Thanksgiving.

Local Options

HUD can permit its regional local offices to loosen HUD's requirements. If HUD homes in Chicago do not sell fast enough, HUD will likely increase buyer incentives for its Chicago area properties. When sales boom in a given city and HUD has relatively few properties available, HUD not only refuses to offer incentives, but it may refuse to accept bids at less than a property's list price. You can pull the best deal on HUD properties in down markets. But regardless of the market, it's worth your time to stay abreast of HUD offerings in areas where you may have an interest.

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