How To Find a HUD Home

Before HUD homes are listed for sale, HUD orders an appraisal and property/pest inspection on the house. This act establishes the current value for the home in relation to comparable homes that have sold in the area, identifies any potential problems with the home, and determines if there is any current termite or pest infestation.

Each HUD home falls into three categories: 1) an insurable property (IN), 2) an insurable property with a repair escrow (IE) and 3) an uninsurable property (UI).

An insurable property (IN) is a home that meets the appraisal guides for a FHA home loan. Most homes that fit within this category do not require major repairs outside of the normal wear-and-tear a home suffers. Offers from buyers with other-than-FHA financing (such as a VA home loan or conventional loan) or cash buyers are acceptable for this type of property.

An insurable property with a repair escrow (IE) refers to a HUD home that is eligible for FHA financing if the total repairs required on the property total less than $5,000. As a result, a repair escrow is established to cover the cost of repairs on the home.

A repair escrow is an account established upon the closing of the purchase of the HUD home for the amount of repairs on the home as identified by HUD. After the close of escrow, the lender will inspect the work as it is completed and distribute the money within 90 days of closing.

It is important to note that a repair escrow is only offered to those home buyers purchasing the home with FHA-insured financing. If non-FHA financing is used to purchase the home, the repair escrow does not apply. Furthermore, the money for the home repairs is not given by HUD to the home buyer; rather, the cost of repairs are included in the loan amount and repaid by the borrower as part of the house payment. Any additional money left over after the repairs have been paid are applied to the buyer’s mortgage and not disbursed to the home owner.

An uninsurable property (UI) is a HUD home generally needing extensive repairs and deemed by HUD as not eligible for FHA financing in its current condition. Other-than-FHA financing or an all-cash deal is required to purchase this type of HUD home.

In some cases, a property may be deemed “Insurable With Conditions”. This refers to properties classified as IN or IE that generally require have a systems check, roof inspection, or other property condition determined by the appraiser for an FHA home loan. The inspection fees are generally paid by the buyer.

Once a home has been classified, it is offered on the market according to a specific listing timeline. This timeline gives priority to owner-occupant buyers over investors for the first 10 days a home is listed. New HUD homes on the market are released each Thursday.

Access to view HUD homes is restricted to select real estate brokers that are approved by the government. Potential home buyers must be accompanied by these agents that have access.