3.3 min read
Why are HUD Homes So Cheap?
Real estate investors and families searching for homes often find “HUD Homes” during their search. The price difference between HUD Homes and other properties can initially seem baffling. However, this is not a scam. There is a reason that HUD Homes are so cheap. But, before we dive into that, you should first understand what HUD homes are.
What are HUD Homes?
HUD homes are properties of 1-4 units that have been claimed by the government agency, Housing and Urban Development, through the foreclosure process. One detail that confuses many people is that HUD does not provide loans but can reclaim homes through foreclosure. The reason for this is simple. HUD insures loans, specifically FHA loans. When a private institution offers an FHA loan that later goes into default, HUD repays that institution and takes possession of the property.
What Makes HUD Homes Cheaper than other Homes?
It is important to remember that HUD homes are not cheaper than other homes by default. A HUD home can sell well above the market price. However, a couple of factors that can make a HUD home cheaper than one might expect are the most recent appraisal, the urgency to sell, and the property condition.
Like any other type of home, the sale price can be negotiated based on the appraisal. An appraisal may very well value the home below market price. HUD has many different properties to manage. Unlike private sellers, they will generally not seek a second house appraisal.
Urgency to Sell
Due to insuring so many FHA loans that go into default, HUD owns a considerable number of properties. Being a government agency, they are more interested in recouping their losses than in making a profit on each home they sell. For this reason, if a property has been in HUD’s possession for very long, they are likely to lower the sale price.
Every single HUD property has been claimed through the process of foreclosure. Owners who are being foreclosed on tend to either defer maintenance altogether. Or start to delay their efforts since they know they will be losing residence soon. If you are willing to buy a fixer-upper, a HUD home can be much cheaper due to a need for numerous repairs.
How Can I Buy a HUD Home?
HUD Homes are technically available to all buyers, from real estate investors to owner-occupants. However, there is a caveat to this. HUD Homes are available to potential buyers in a particular order.
Order of Access
HUD offers homes at auction to specific buyers first as a government agency. Their top priority, and first bidding group, is owner-occupants, government agencies, and non-profits. However, suppose that the bidding phase passes and they have not accepted an offer. In that case, the auction opens up to all potential buyers.
If you are interested in a HUD home, look at their auctions. Conveniently enough, RealtyStore.com has lots of HUD listings for you to review. Additionally, the site will tell you what bidding group each house is in, so you know if you are eligible to bid!