Buying a HUD Home offers many buyers the chance to purchase their home with built in equity, and allows investors some fantastic deals, as well.

When the foreclosure rate is particularly high, as it has been the last couple of years HUD’s inventory swells, and there are deals to be made. HUD deals are very different from traditional purchases, however, so make sure and follow sound advice before purchasing your first HUD home. Follow these tips, and you will be on your way. Here are the top 7 tips when buying a HUD home

1. All HUD Homes Aren’t Great Deals

Many buyers mistakenly assume that, if the US Department of HUD is selling, it must be a great deal. This couldn’t be further from the truth! Many Realtors relentlessly market HUD homes to drum up business, and this can create a glut of HUD buyers. When the HUD inventory is particularly low, oftentimes buyers will bid the property up to, or above the fair market value. Look at every HUD home deal on its own merit, and make your decision based on that.

2. Understand the Bidding Process

HUD home purchases are very different than conventional deals because they follow a “blind” bidding process. The bidding date is released by HUD, and each buyer submits their best offer-without the knowledge of any other bids. As long as HUD finds the highest offer acceptable, that offer is accepted. HUD retains the right to refuse all offers.

3. Know the Difference Between “Owner-Occupant” & “Investor”

One of HUD’s goals is to increase the number of US citizens who own homes. Because of this, they give preferential treatment to owner-occupants over investors. Owner-occupants have the first 10 days to bid on any home before it is released to investors. A buyer may bid as an owner-occupant once every two years. Make sure and bid honestly-otherwise it is illegal, and can result in hefty fines.

4. Anticipate Repairs

You are allowed the opportunity a third party inspection before closing, but buyers cannot negotiate repairs based on the results. Backing out of a HUD home deals & retaining your earnest money is trickier than conventional purchases, too, so you may run the risk of losing your earnest money. Make sure and go through the home thoroughly before submitting your bid.

5. Continually Monitor the Inventory

As foreclosure rates rise and fall, so does HUD’s inventory. The laws of supply & demand definitely apply here-when the inventory is high, your chances of getting a great deal is higher than when they are low. Follow the asking price & sales price of HUD homes-if they are selling far over asking, it might not be the time to buy, in other words it is still important to look at other HUD comparables to see if the asking price is to high and the “HUD market does not substantiate the List Price.

6. Make Sure Your Realtor & Lender Know the Process.

After your bid is accepted, the paperwork begins! In Texas, HUD requires that you submit original signed (in blue ink) paperwork to the HUD agent’s office within 48 hours of the bid’s acceptance. If the paperwork is incorrect, you are allowed one revision-which must be received within 48 hours. They are just as strict with a lender’s closing documents-so make sure both your Realtor & lender are very familiar with the HUD process. Oftentimes, the HUD agent’s located in a different city-and often, the escrow agent will be located in yet another city-this can put a very interesting twist on the process and time restraints. Make sure to know what the HUD regulations are for your state.

7. Act Quickly & Decisively

Because HUD places very strict time constraints on bidding, and due to the bidding process, you must act quickly & decisively. You will typically have 1-2 weeks from the date HUD places the property on the market until the bidding period begins-and more often than not, the property will be purchased on the first day of bidding. Make sure & exercise your due diligence, and make your decision quickly-you often won’t get a second chance.

Buying a HUD home can be a fantastic opportunity for a buyer or investor to get a great deal on a property. However, because the purchase process is quite different, make sure & do your research before attempting to find your first buy. Follow these top 7 tips when buying a HUD home, & you will be on your way to a successful transaction!