The Federal Housing Authority (FHA), a division of the Department of Housing and Urban Development (HUD), guarantees mortgages on houses in order to encourage banks to lend to those who might otherwise not be able to acquire a mortgage. When those mortgages are defaulted on, HUD takes possession of the home through foreclosure proceeding. These one- to four-unit dwellings, often called HUD houses, may be sold at prices at or below current market value.
After HUD takes possession of a home through taxation, it tries to dispose of their property as rapidly as possible. But, HUD rules require the HUD houses first be offered to folks who are owner-occupants. This priority interval is between 10 to 21 days, depending on the regional rules. If the priority interval expires and the residence is not under contract, the home could be sold to investors who will resell or rent the property.
HUD properties are sold through management companies that maintain websites on the Internet. Any real estate agent who is registered with HUD can submit an offer for a buyer on one of these properties. When a HUD home is first offered for sale, it will be priced at fair market value. During what is known as an offer period, HUD takes offers on the property; when the interval is up, it opens all the offers and takes the greatest acceptable bid.
HUD homes are sold as is without any warranty as to the state of the houses, nor will HUD pay for any repairs. Prospective buyers should get a home inspection by a licensed professional inspector before purchasing a HUD home. Homes that need rehab can be financed with FHA 203(k) loans, which give the borrower with the money to buy the HUD home and fix it up, using a single mortgage.
HUD offers houses at a discount to firefighters, teachers, law enforcement representatives, emergency medical professionals, government organizations and nonprofit organizations under a program called Good Neighbor Initiatives. Discount programs are also offered to residents of hurricane-ravaged areas (such as those affected by Hurricanes Katrina, Gustav, Wilma and Rita) who lost their houses or needed to move permanently because of hurricanes.
Local governments may purchase HUD homes at a discount. Houses appraised at below 20,000 dollars may be obtained for as few as 100 dollars if they have been in the marketplace for over 60 days and the organization is purchasing at least 10 houses under a bulk sales plan. Homes in the marketplace after 180 days and not under contract could be sold to local governments for one dollar and closing costs.