A HUD home is a foreclosed home which is now owned by the Department of Housing and Urban Development (HUD) of the Federal government.  How did it become a HUD home?  The home buyer used an FHA mortgage to purchase the home.  If you read our blog on FHA mortgages, you remember that these are mortgages which are “insured” or “guaranteed” by HUD.  In other words, the bank lends you the money but HUD assures the bank that in case of foreclosure, HUD will pay the bank any losses that occur.  The bank is insured against default by HUD.

In Minnesota, the process to purchase a HUD home is a little different than purchasing any other foreclosed home.  The process is an auction process.  The rules may vary depending on how long the home has been on the market but briefly, you will be submitting a sealed bid to HUD.  Other buyers may submit sealed bids as well.  If your bid meets the minimum bid requirement established by HUD for this property, AND it also yields the biggest profit of all the bids to HUD, you will “win” the home.  Be sure to work with a Realtor when purchasing a HUD home because the rules are quite different than those used in purchasing other homes.  Both your right to a home inspection and your right to a refund of your earnest money differ for HUD homes.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

If you are actively shopping for your first home, it’s impossible to avoid looking at foreclosed homes.  They represent almost half of the homes on the market in Minnesota.  There are four things to remember when you consider purchasing a foreclosed home:

The owner of the home is a bank.  The bank representative has never lived in the home and will not tell you anything about it.  They don’t know how old the roof is, whether the furnace has had annual service, whether there has been a water leak in the home and if everything in the home works.  In other words, you will receive no information on the home except what you discover yourself.

The personal property remaining in the home is not owned by the bank and they cannot and will not sell it to you.  If there is still a refrigerator, a stove, a microwave, a washer and a dryer, technically they belong to the original home owner and not the bank.  If the home owner chooses, they can come and remove them before closing.  If they don’t come to remove them and they “abandon” them, then you can claim them at the time you move in.

The utilities in these homes may have been disconnected without properly preparing the home.  If the heat has been turned off in the wintertime and the plumbing in the home has not been winterized and treated with antifreeze, the pipes may freeze and burst.  When spring comes and the water melts, it may cause mold to grow in the home.  These homes can cost a lot of money to repair and restore. 

There are usually one or more problems with foreclosed homes that require remedy by the buyer.  These may be big problems (burst pipes, mold, ageing roof) or these may be small problems (missing appliances, doors, kitchen cabinets etc.).  Be prepared to spend some money after closing to restore the home.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.