HUD Home Process, Minnesota Hud Homes

The HUD Home Process – From Offer to Closing Day

Purchasing a HUD home or a home where the mortgage was insured by the FHA and has gone into foreclosure is not as hard of a process as you may think.  Whether you are looking at a hudhome as part of the Good Neighbor Next Door (GNND) program or looking to purchase the home as an investor, there are some guidelines HUD homes for sale have and you should know about them and adhere to them to ensure your purchase.  Here we will go through the process of purchasing government homes from offer to closing day.

Who Can Buy a HUD Home?

Anyone can purchase a hudhome and the foreclosed homes may be purchased as an owner-occupied home or investors.  Buyers who are seeking a foreclosed home on an owner-occupied basis have a priority bid period over investors of ten days.

How Are HUD Homes Priced?

All HUD homes are sold at market value price or what is called the appraised market value.  A buyer can make any offer, but usually, HUD will accept only those offers close to the market value price, unless they offer a price reduction on a hudhome that isn’t selling.

All HUD homes are sold “as is,” meaning that HUD does not make any warranties nor do they guarantee the home’s condition.  Home inspections are recommended and required prior to buying a hudhome to ensure any needed repairs will fall within your budget or if you can roll them into your new mortgage.  Home inspections are ordered and paid for by the buyer and you should only hire a licensed inspector.

What Are HUD Deadlines?

Unlike a conventional home purchase where you and the seller may negotiate for as long as you wish, HUD has certain deadlines.  To be fair to every buyer, HUD has timelines that you must meet in your bid otherwise the bid you make on the hudhome will face cancellation.  For example, once your real estate broker sends your bid to HUD and it is accepted as the highest bid, your real estate broker must send your signed sales contract within 48 hours of the bid or your bid will be canceled and HUD prefers closings within 45 days of bid.

How Are Bids or Offers Submitted?

You must have your bid or offer submitted to HUD through a real estate broker who is licensed to sell a HUD home.  Offers are submitted through an electronic bidding process by your broker.  Each bid is stored within a computer and after a HUD set time period, the computer calculates the highest bidder automatically.  Your broker is then notified if you are the winning bidder and asked to submit a signed sales contract within 48 hours of your bid.  Failure to abide by the 48-hour period will cancel your bid.

How Are HUD Homes Listed?

All new listings by HUD are released weekly each Friday morning.  During the first ten days of any new listing on each Friday morning, HUD only accepts bids from owner-occupied bidders.  It doesn’t matter if you submit a bid on day one, day five, or day ten, as long as the bid has been received electronically, HUD considers all owner-occupied bids to be submitted simultaneously.  On the 10th day, all owner-occupied bids will be reviewed and winning bids are posted daily at 1:00 pm.  This initial 10-day period is called the Exclusive Listing Priority Period.

After the 10-day period has passed and no winning bids are confirmed, HUD will open up the bidding to the general public.  These general public bids are reviewed and in the event the property still remains unsold after general public bids, all daily bids received by 11:59 pm will be reviewed and winning bid results are posted the next day by 1:00 pm.  HUD reviews all bids after 1:00 pm on Friday afternoon or on Saturday or Sunday on the Monday following.

What is the HUD Home Closing Process?

Once your signed sales contract has been submitted to HUD through your real estate broker within the 48 hour time period, HUD will acknowledge your sales contract and provide your real estate agent a letter letting you know that you now have 45 days to close.  A HUD closing agent is assigned to you and will work with your broker to ensure you close on time with all the required documents.  It is important to note that if your real estate agent uses a HUD closing agent, HUD pays their fees.  If you use your own closing agent, you are responsible for paying all closing cost fees.

What Else Should I Know?

If you are buying a HUD foreclosed home, HUD will pay up to 5% commission to the selling broker, or your real estate agent.  HUD will also pay up to 3% of standard closing costs if you use one of their closing agents.  HUD will also reimburse loan origination fees of up to one percent on your new mortgage.  You can also ask your real estate agent to explain how earnest money can be returned and what requirements must be met.  Be sure to ask about how earnest money is refunded because if this happens to you, certain guidelines must be followed to receive all or half of your earnest money if you fail to close on the HUD home.

What If I Need More Time?

If for any reason, you feel you and your real estate agent or financial institution can’t complete the closing process within 45 days, your real estate agent must notify the HUD closing agent at least two weeks prior to your 45 day deadline and submit HUD’s form “Request For Extension of Closing Date,” and HUD may extend your timeframe for another 15 days.  Your real estate agent must provide appropriate documentation on why you need an extension in additional to certain monies required.

For example, with every approved extension request, HUD must also receive a cashier’s check, money order or other certified funds made payable to HUD that are considered extension fees.  The extension fees are based on the contract sales price.  For example, if the hudhome you are purchasing is less than $25,000, you pay $10 per day or $150, homes sold at $25,001 to $50,000 have a $15 per day fee or $225.  HUD homes that sell for over $50,000 and require the 15-day extension will pay a fee of $25 per day or $375.  Whether you need to pay $150, $225, or $375, these fees must be submitted to HUD in certified funds or money order as described above.

Purchasing a HUD foreclosure home requires you to keep in close contact with your real estate agent, especially if you require an extension.  All 15-day extensions applied for owner-occupied buyers will have no fees if your real estate agent provides to HUD documentation indicating a timely loan and loan application was made and that your mortgage approval is very close.  Further, if you are charged an extension fee, HUD retains all fees whether you close on time or not and then used as part of your closing costs.

Summing It All Up

Purchasing HUD homes for sale is an easy process if you utilize a real estate broker who is licensed to sell HUD homes and understands the HUD home buying process.  When going through any HUD approved real estate broker, ask them how knowledgeable they are about the entire process of buying a HUD home from offer day to closing day.

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