HUD Homes in PA - Everything You Need to Know

House with a foreclosure signA HUD home is a repossessed house (or condo) that was purchased with an FHA mortgage. When a homeowner fails to make his or her monthly mortgage payment, the bank forecloses on the property. The Federal Housing Administration's home-loan program "insures" the bank against failure. As a consequence, the lender is reimbursed by HUD for the loss. HUD takes control of the foreclosed house (or apartment) shortly after the mortgage is paid off and will attempt to sell the property as quickly as possible, thus HUD home. A HUD home is sometimes referred to as an FHA foreclosure.

Six steps to buy a HUD home

  1. Get pre-approved by a lender
  2. Find a HUD approved real estate agents
  3. Find a suitable house at the HUD Home Store
  4. Obtain a pre-approval letter from the lender for the house
  5. Make an offer on the HUD home
  6. Make loan application (if financing the purchase)

1. Get pre-approved by a lender

HUD requires prospective home-buyers to obtain loan pre-approval from a lender. The pre-approval is important because a pre-approval letter must accompany the sales contract if the offer is accepted.

2. Find a HUD approved real estate agent

HUD/FHA markets foreclosed HUD properties via authorized real estate agents and brokers. Only HUD-registered real estate agents may submit an offer on your behalf.

3.Find a suitable house at the HUD Home Store

HUD homes are sold as is. You will notice that there are three codes listed on the property card.

IN-Insurable: This designation means that the property meets the standard FHA 203(b) financing requirements.

IE-Insurable w/escrow: The appraiser has concluded that repairs are required to satisfy the appraisal requirements for an FHA (203B) mortgage. Repairs must not cost more than $10,000, with a 10% contingency. The maximum escrow amount is determined by the total amount of repairs needed to meet FHA property standards.
Repairs must be completed within 90 days of the loan's closing.

UI-Un insurable: To satisfy the FHA requirements for an FHA 203B mortgage, the property needs more than $10,000 in repairs. Some uninsurable homes, but not all, may be eligible for an FHA 203(k) loan. A 203(k) loan is an FHA rehab loan in which the cost of repairs and upgrades is incorporated into the loan amount.

4. Obtain a pre-approval letter from the lender for the house

After finding a suitable house to bid on, ask the lender to provide you with a pre-approval letter for the house.

5. Make an offer on the HUD home

HUD sells the foreclosed HUD homes through a bidding auction. A licensed real estate agent is required to submit your bid on the HUD home. HUD will compensate the real estate agent provided the Realtor's® commission request is contained in the purchase agreement. HUD will pay up to 3% in seller paid closing-costs (seller assist).

The sales contract package must be submitted by the real estate agent within 48 hours of acceptance by HUD. The earnest money must be remitted within 72 hours of receipt of instructions from the management company. For a purchase price of $50,000 or less, the earnest money deposit is $500. For purchases greater than $50,001 or more, an earnest money deposit of $1,000 is required.

6. Make a loan application (if financing the purchase)

If the offer is accepted and signed by HUD, the buyer has a 15 days to complete a professional home inspection (if desired) to determine if there are any substantial property deficiencies not disclosed on the Property Condition Report.

Unfortunately, you are responsible for the utilities to be turned on. The home inspector and the appraiser both need the utilities functioning in order to complete their evaluation.

The settlement date is usually 30–60 days from the date of your accepted contract.

Frequently Asked Questions About HUD Homes

Q. Are HUD homes guaranteed?
A. HUD homes are sold without a guarantee or warranty. This means that HUD is unlikely to correct any problems with the home. However, just because a HUD home needs fixing up or some repair, a HUD home may still be a great buy!
The Department Of Housing And Urban Development encourages home-buyers to obtain an expert home inspection on HUD homes prior to making an offer.

Q. Are HUD homes Cash only?
A. HUD does not limit purchases to cash only.

Q. Are HUD homes sold as is?
A. HUD homes are indeed sold as is.

Q. Are HUD homes worth buying?
A. HUD homes can be worth buying.

Q. Can anyone buy a HUD house?
A. During the first offering, HUD houses are only offered to buyers who intend to use them as their main residence. Investors may bid if an owner-occupant does not bid during the first bidding period.

Q. Can you buy a HUD home with cash?
A. Yes

Q. Can investors purchase HUD homes?
A. HUD prefers to sell the HUD homes to buyers who intend to occupy the home, however, if there are no acceptable offers during the priority period, unsold HUD homes are made available to investors. HUD is concerned about fraud regarding owner occupancy.

As a consequence of reducing fraud, HUD requests bidders who submit offers on a property during the first offering to sign a document that they have not bought another HUD house in the previous twenty-four months of their offer and that they will occupy the home for a minimum of twelve months.

The agent is also required to sign a document verifying that he or she does not have information that the buyer is not an investor

Q. Do HUD homes pay closing-costs?
A. HUD will pay up to 3% of the buyer's closing-costs if stated in the sales contract.

Q. Does the FHA finance foreclosures?
A. The Department of Housing and Urban Development (HUD) and its affiliate, the Federal Housing Administration (FHA), do not provide direct mortgages to purchasers of HUD-owned properties. Buyers who need financing must go via a lender, bank, or mortgage broker. FHA loans are obtained through authorized banks and mortgage brokers. The Federal Housing Administration will provide financing to qualified house purchasers on FHA-approved properties.

Q. What are the advantages of buying a HUD home?
A. The biggest advantage is a reasonable sales price. HUD homes are appraised before being offered to the public.

Q. Will HUD make repairs to a HUD home?
A. HUD does not warrant the condition of the HUD homes and will not pay for the repair of any problems.