HUD Homes–Saving Big Money with HUD Foreclosures

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If you are in the market to buy your first or next home, a HUD home could potentially save you tens of thousands of dollars on the purchase price.

While buying a HUD Home can save you a lot of money, there are some things to watch out for. In this article we’ll cover the basics of buying a HUD foreclosure home and some tips on getting the lowest price possible.

HUD Homes

HUD Homes are 1 to 4 unit residential properties acquired by HUD as a result of a foreclosure on an FHA-insured mortgage. The condition of HUD foreclosures can vary substantially. I’ve been in some homes that reminded me of the final scenes from The Silence of the Lambs. Some homes, however, were in near move-in condition. Some HUD Homes were built just a few years ago, while others are 50+ years old. Finding the home that’s right for you will take some work, but your willingness to buy a home that needs some repairs and improvements presents an opportunity to buy a home at a big discount.

It’s also important to understand that the availability of HUD housing varies from location to location. In the mid-West, for example, there are many homes to choose from because of the price range (FHA only insures mortgages of a certain dollar amount) and number of foreclosures. In other more expensive areas, you are likely to find far fewer available homes. Fortunately, HUD and its property management contractors offer a convenient way to search for homes online.

HUD Homes Online

On the HUD website you’ll see in the left sidebar a link to HUD Homes. This page provides links to all fifty states and the District of Columbia. Because HUD contracts out the management of its properties, these links will take you to the website run by the property management company for the state you select. For this article, we’ll take a look at Ohio properties, which are managed by National Home Management Solution (NHMS).

Each property management website offers four categories of information you should know about:

1. HUD Home Buyer Information: They provide information on how to buy a HUD Home and on buying your first home. Links to this information typically point back to the HUD website.

2. HUD Home Search: They provide a means to search for homes by city, county and zip code.

search HUD homes

While the format of the search results varies from one management company to the next, this screen shot from HUD Homes in Ohio is typical and gives you an idea of the information that is available (click image to enlarge).

hud homes listing

From the listing, you can then look at detailed information about each home (click image to enlarge):

hud home detail

From the detail listing you can read an inspection report of the home and details about the home as provided by the management company.

3. HUD Housing Bid Results: Bid results and bid statistics (discussed below) are two critical data points for predicting the minimum bid price HUD will accept for a given home.

hud home bid statistics results

It’s critical to recognize that the list price for a HUD Home is almost never the price you’ll pay. For my investments, I’ve bought homes for anywhere between 60% and 87% of the list price. Knowing what HUD’s minimum acceptable bid is takes a lot of trial and error. I probably bid on 15 HUD Homes to get one. But over time, you learn how low you can bid to get a home.

Bid results show you the amount of winning bids. From this you can compare the list price of the home with the winning bid price.

4. Bid Statistics: Unlike bid results, bid statistics shows you all bids on a property (both the winning bid if any, and all losing bids). Coupled with bid results, bid statistics represents extremely valuable information to study when evaluating a HUD Home.

Owner Occupied HUD Homes

As a buyer who will live in the HUD Home, you get several advantages over investors. First, you get to bid on the home first. When HUD housing is first put up for bid, only bidders who will live in the home can bid on it. In the listing of homes, you’ll see the designation “Owner Occupant,” which indicates that the home is open for bids only by those who will occupy the property. After about two weeks, if no acceptable bid is made, investors can bid on the property.

Second, HUD provides a number of incentives for owner occupied buyers. These incentives can change, but typically include assistance with closing costs (currently $2,500), ability to borrow more than the cost of the home to fund needed repairs and improvements, and low down payment financing.

Using a realtor

Only licensed real estate agents can submit a bid for a HUD Home. My strong advice is to find a realtor that has a lot of experience buying HUD Homes. There is definitely an art and science to bidding on these foreclosures, and I’ve seen homeowners bid way too much for a HUD Home due to inexperience. A realtor with experience investing and improving HUD foreclosures would be ideal.

Final Thoughts

I’ve bought five HUD Homes as real estate investments and the fifth one was just this week. It is a 3 bedroom one bath home for which I paid about $40,000. The list price was $65,000. We estimate that improvements will cost $15,000, and we can either rent the property for about $745 per month or sell it for about $85,000. Either way, it should turn out to be a great investment.

Buying a HUD Home for yourself can be equally rewarding. If you’ve bought a HUD Home before, share your experience with us. And if you have any questions, just leave a comment or send me an email.

Published or Updated: March 22, 2012
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. ConnieB says:

    Wow. This is a very through article. Stumbled!

  2. Audrey says:

    Thank you so much for all of the useful information you have on your site. I was wondering if you would mind giving me your opinion on this HUD house as to what you would bid: http://www.tenmanagement.com/listings/property-detail.do?list=2010-05-28&case=151-869750&code=IN
    It is an unusual case because the list price is more than double what most HUD houses in this area list for. I crunched some numbers and it seems the average net bid that wins a HUD house locally is 85% of the list price (for houses listing for 90K and over). Please let me know what you think the lowest net bid HUD would accept would be. I realize you’re just making your best guess, but I’d appreciate your opinion because of your knowledge and experience. Please email me back as soon as you can. I’d sure appreciate it!
    Thanks so much, Audrey

  3. annie says:

    Audrey,
    I am glad you made a current comment. I also believe they will accept 85% of list price. Have you bid yet? How did it go? I will be shortly…

  4. CHANDA says:

    May I bid on more then one HUD home at a time and then choose the one I like best out of the bids I win?

  5. Mary Schroeder says:

    Thank you for the article! It is very informative. I am in Indiana and there is a HUD house listed at $56,000. We bidded $50,000 (89%) which we think was reasonable enough. But HUD rejected it by cancelling our bid! Our real estate agent is not very experienced with HUD. Is there any way for ourselves to see bid results in a city or region so that we can come up with the lowest bid that will be accepted by HUD?

    Thanks so much in advance!

    • DR says:

      Mary, there isn’t a set formula for HUD minimum bids. The minimum bid varies from location to location and even from house to house. When I was actively buying HUD homes in Ohio, we got pretty good at guessing the minimum bid, but there were always surprises. It’s really trial and error. But having a real estate agent with lots of HUD experience is key.

  6. Tom says:

    My experience is not proving to be that great. Am finding HUD is intentionally NOT disclosing important issues that affect the home. Examples: Drive lots of mile to see what APPEARS to show a decent livable home. But upon arrival, we find out that the home is NOT habitable as someone does NOT bother to turn around and show the water damage ceiling, walls and MOLD. Yet their listing makes the homes sound wonderful. Then their YOU MUST PAY OUR LISTING PRICE, or close to, attitude really sucks. When I run numbers for repairs, many times the repairs PLUS their demand price auto puts a buyer “under water”. Now seems, since their new turnover, does not even have enough respect to let bidders know the bid status. They just seem to toss you bids in the waste basket without even being told your bid was too low or even rejected. My experience with HUD is proving not to be worth all the time, fuel and effort to waste my time. I find Realtors are also fed up with their system and wasting all their NOT SO FREE gas showing junk…… JMO Wonder who is paying for all the HUD homes to stay in inventory for long periods of time??????

    • Tom says:

      Did not know this posting showed up. Web was stuck during loading and thought I had cancelled…… See next post.

  7. Tom says:

    NOT HAPPY WITH HUD………..
    My experience is not proving to be that great. Am finding HUD is intentionally NOT disclosing important issues that affect the home’s condition.

    Examples: Drive lots of miles to see what APPEARS to show a decent livable home. But upon arrival, we find out that the home is NOT habitable as someone does NOT bother to turn around and show the water damaged ceiling, walls and MOLD, roof damages, other leaks, etc. Yet their listing makes the homes sound wonderful. Then their YOU MUST PAY OUR LISTING PRICE, or close to, attitude really sucks. How does HUD think that structural damage, water damage, active MOLD, leaking roofs, etc. make a property that much more valuable?

    When I run numbers for repairs, many times the repairs PLUS their demand price auto puts a buyer “under water”, plus property values are still mostly declining in many areas no matter what Realtors tell you. Remember, it is a Realtor’s job to help keep prices high for tax purposes and a larger commission check. Don’t take a rocket scientist to figure that out. (that should draw out a lot of defensive posturing…) I actually have Realtors getting upset if I don’t buy and go “underwater” upfront. Why would that be?

    Now seems, since their new turnover, HUD does not even have enough respect to let bidders know their bid status. They just seem to toss your bids in the waste basket without even being told your bid was too low or even rejected. My experience with HUD is proving not to be worth all the time, fuel and effort to waste my time. I find Realtors are also fed up with their system and wasting all their NOT SO FREE gas showing junk…… JMO

    Wonder who is paying for all the HUD homes to stay in inventory for long periods of time? Sure seems they are not all that interested in moving them out of inventory……..

  8. Christine says:

    You have an excellent website. Thank you for all of the information. I am a new real estate agent in Ohio and wondered where I find the Bid Results and Bid Statistics on the HUD homes. I have looked all over the HUD Home Store website and can not find it.

    Thanks,

    Christine

  9. SERGIO says:

    Hello

    It’s true 100%

    I have bought my first property for 21.500$ Value is 70000$ and 10000$ for repairs and my second property for 22.000$ Value 82000$ and 8000$ for repairs.Make sense or not?????

  10. Adam says:

    H.U.D. victimizes, plunders and destroys for it’s own pleasure. Prepare to be homeless dealing with HUD. This is how they operate to further support the welfare work first Act. & job placement programs. HUD is a welfare predator program who preys on the American dream.

    If your considering in buying a HUD home please take the test below.

    The HUD effect test.

    1. Open all the windows in your residence in the winter time.
    2. Turn off the heat or furnace for a few days.
    3. Draw an Ice cold bath.
    4. Turn (Full) on shower (Cold)
    5. Carefully climb into bath with shower on and take all the money you intend to purchase a HUD house with and shove it down the drain.

    If you enjoy and pass this test, HUD has a home for you.

    HUD employees hold no civic duty to our country because there not Americans. Don’t support this agency or its employment base go find a true real estate agent in your area. You’ll be much happier.

    Regardless how much you wish not to believe the truth. You’ll end up hiring an attorney (if you can afford one) after arriving homeless again.

  11. Linda says:

    Hi. I am bidding on a house in Arizona City, AZ. It is IE home. The list price for this home 34200. It is an extended listing period. We put in a bid of 29500. Do you think I stand a chance?

  12. rick says:

    do people that rent out hud homes have to pay there property tax in the state of Ohio?

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