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What is a HUD home? Everything you need to know.

by | May 14, 2021 | Buying, Real Estate Glossary

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If you’re in the market for a new home, you may have come across the term “HUD Home” in your search. These homes can be a great opportunity for buyers, and even offer cost savings. But it’s important to do your research. Let’s look at what a HUD home is and how to buy one so you can decide if this is the right fit for you. 

What is a HUD Home?

HUD homes are foreclosed properties that were purchased using a FHA loan. A residential property becomes a HUD home when its owner defaults on their loan by failing to pay the mortgage. HUD, the Department of Housing and Urban Development buys the home and sells it to the highest bidder in order to recover their costs.

The government seeks to regain their investment quickly, so typically these properties are sold quickly. HUD homes are appraised then priced accordingly. However, to encourage more buyers, they are sometimes listed for below fair market value. It’s important to note that these homes are sold as it, meaning no repairs are made prior to the sale. 

Cost and Condition 

The appraisal price of a HUD home determines its market value and list price. Similar to a traditional home sale, the home undergoes an inspection. If the inspection identifies any major issues, the home’s price may be reduced. But remember, these homes are sold as is and no improvements will be made before the sale. 

Buyers considering a HUD home should review the property’s conditions report. This provides information that will be helpful for an inspection. For example, what can be turned on within the home during the inspection. The listing also includes information regarding how the property can be insured. If a home can’t be privately insured, this limits your eligibility as the buyer for a FHA loan. 


Once you’ve found a home you like, it’s helpful to view it in person. However, if this isn’t possible buyers should strongly consider paying for a professional inspection. Buyers with an FHA loan are required to have the property inspected, using a HUD-approved inspector. 

An inspection may seem like an unnecessary cost to some, but it’s essential in providing an in-depth look at your potential purchase’s condition. This helps buyers to prepare a budget for the improvements and repairs needed. It’s also beneficial to consult a contractor for any potential repairs. Consider doing this prior to submitting an offer to avoid going over budget when it comes to improvements. 

How to buy a HUD Home

Purchasing a HUD home is different than buying a traditional home. HUD properties are not listed on the MLS, instead listings are managed by the state they’re located in. You can also do a national search by zip code, city or state. 

HUD homes are sold via auction. Buyers must work with a real estate agent who is registered with HUD in order to submit a bid. To increase your chances of making the winning bid, choose a real estate agent experienced in foreclosures.

Initially, when the home goes on the market, HUD gives owner occupants the exclusive ability to submit a bid. Typically this bidding window varies, but is a minimum of 5 days. Then the bid is opened up to all buyers and investors represented by a HUD approved agent. HUD does not give priority to any type of bidder, but simply accepts the highest offer. 

HUD home sales differ from traditional homes in that a cash offer or ability to close quickly doesn’t give a bidder priority over other offers. However, if none of the submitted bids are viewed as high enough, then the auction is extended. It’s not uncommon in this type of sale to see amounts like $100,001 rather than $100,000 to ensure you’re the highest bidder, even if only by $1. 

Financing a HUD Home

All HUD homes were previously financed with FHA loans. However, getting approved for a HUD home mortgage is similar to getting approved for a traditional mortgage and you will need to be approved prior to making an offer on the home. As with securing a traditional mortgage, be sure to do your research and compare options before committing to a lender. 

Buyers can choose to use a conventional loan, but there are other options and special programs available for those who qualify. Veterans or active service members can apply for a VA loan, while buyers with lower credit should look into a FHA loan. 

The 203(k) program through your FHA lender is an option to consider if your HUD home is in need of large renovations. 

As with a traditional home purchase, HUD homes also require earnest money to ensure the buyer’s intent to purchase the property. A 5% payment is required, if the buyer fails to fulfill their part of the purchase contract, then the earnest money is forfeited. 

After the bidding is closed, your agent will be informed and let you know if yours was the winning bid. Then you typically have 30 to 60 days to close on your HUD home. 


  • Less Competition: If you are an owner occupant buyer, you have first access to bidding on the property and could face less competition from investors
  • Special Assistance is Available: Multiple assistance programs exist to make buying a HUD home more affordable for low incomes families or first time homebuyers
  • Closing Costs: HUD pays up to 3% of the purchase price in closing costs. This includes a mortgage origination fee of up to 1%. 
  • No Haggling with the Seller: Simply submit your best offer as a bid in the HUB home auction, then wait to hear if your bid was accepted. 


  • Sold As-Is: There is no negotiating repairs or improvements to the home. You agree to purchase a HUD home regardless of the repairs an inspection may identify. 
  • Vacant Home: HUD Homes often sit empty during the bidding process. Vacant homes can deteriorate faster, or be at risk of break ins. 
  • Strict Requirements: If you purchase a HUD home as an owner occupant, you have to commit to living in the home for at least one year. You cannot convert the property into a secondary residence or vacation home. And you’re not permitted to purchase an additional primary residence during this time. 

Is a HUD Home Right for you?

A HUD home can be a great opportunity to score a deal on new home, or it might be a huge risk for you and your savings. Buyers considering a HUD home should do their research. Understand the risks and be sure to identify a budget that works for your finances. If you choose to pursue a HUD home, there are a number of assistance programs and financing options to consider that could be beneficial to you. 

Remember, to purchase a HUD home you must work with a HUD registered real estate agent. If you’re unsure where to start, consider working with Trelora. Our agents close hundreds of deals per year, so they’ve seen it all and can answer any questions you may have. Trelora also offers cost savings for buyers, we split our commission with you 50/50 up to $6,000 cash back. Your cash back could pay for renovations in your new home. 

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The information contained in this blog is for general information purposes only, and while believed to be accurate, Trelora assumes no legal responsibility for accuracy. Information provided within should not relied upon as legal advice. Please consult with your local advisors for independent information regarding availability and applicability in your market.