HUD Homes

Is it possible to negociate a deal with a hud home? also will hard money lenders lend on Hud homes?

everything is negotiable, just not that much when you’re dealing with banks, especially if you have not done business with them previously.

yes, you can get money from anyone as long as it’s a good deal.

watch out for the HUD homes. they have restrictions on investor purchases - basically, there’s a waiting period. HUD wants home owners to purchase and live in them. HUD is all about URBAN DEVELOPMENT. investors aren’t necessarily looked on as the cream of the crop, because they rent them out and rentals usually mean the property/neighborhood will not be improved.

When you are considering a HUD home, you will not be dealing with a bank. You will be dealing with HUD. HUD does not negotiate. There is no counteroffer. Instead, HUD either accepts your offer or just rejects your offer if it will result in less than the minimum net proceeds that HUD deems acceptable.

This does not mean that you have to offer full price, however as a general rule, bids less than 95% of list price usually fail to meet the minimun net proceeds acceptable to HUD.

HUD homes are sold as is. HUD will not make any repairs. Repair escrows, if noted in the offering, are only available to owner occupant buyers. Investors are expected to take any repair needs into consideration when coming up with their offer.

Additionally, HUD homes are sold in a sealed bid system. All offers submitted during the bid period are considered submitted simultaneously. When the bids are “opened”, the bid that results in the highest acceptable net to HUD is the winner. Ties go to the owner occupant buyer over an investor buyer.

it makes you wonder if buying HUD homes is worth it, for the new investor.

i mean the whole issue of these homes not having utilities for over 6 months to a year is kind of scary. i know that HUD is working on this system to off load the properties quicker and in better condition, but as a new investor or any investor that is using leverage to make purchase, you kind of have to keep rehab costs to below 5000 and you or inspector really can’t do a thorough inspection of property without utilities.

can anyone comment on the procedures, if any, for getting utilities turned on at a HUD home so that water,heat, and electric can be checked out during inspection?

Within the contract period, HUD will allow you to turn on utilities to do your inspections. HUD deals are fine if the numbers work. Many distressed properties have utilities turned off for an extended period of time so I don’t see any disadvantage to HUDs in this repsect. If the numbers work, then a deal is a deal.

you need to have a really good inspector to go in and look at a HUD home; don’t believe their estimate for repairs.

how much they take depends on a lot of factors; in one area I focus on, I was told the magic number was 12% below list. I threw in a low-ball offer (18% under list) expect it to be rejected, but they took it. granted the place had been listed for 3 months with only one other (very, very low offer).


Just so we are all on the same page, when you purchase a HUD property HUD pays the broad listing broker fee, the buyers agent fee, and any closing cost assistance included in the contract. Additionally, if the property is insurable and if the buyer will be using an FHA insured loan, then HUD also pays about 4 points to sell the loan in the secondary market.

After all these fees, closing cost assistance, and discount points are paid, whatever is left over from the sale proceeds is the NET to HUD. HUD’s minimum acceptable NET is about 87% of list price for investors and about 89% of list price for owner occupant buyers. At least, this was the rule in 2001 when I bought my last HUD property. I don’t think HUD has changed their rules, just Management and Marketing companies.

If the investor-buyer does not request any closing cost assistance, and since there is no FHA financing involved for the investor, the net to HUD is only affected by the sales commissions to be paid. Assume for the sake of this example that the buyer’s agent takes a full 5% commission and the broad listing broker takes 1%, for a total sales commission of 6%.

Now the arithmetic problem is to determine how much to bid so that the net to HUD is at least 87% of the list price after the sales commission is paid, or put another way, at what point does 94% of your bid equal 87% of the list price? Let’s work this out as follows, using a 100K list price.
NET to HUD = Bid Price - 6% Sales commission = 94% x Bid Price
NET to HUD = List Price x 87% = $100K x 87% = $87000
NET to HUD = 94% x Bid Price, therefore, Bid Price = NET to HUD / 94%
Bid Price = NET to HUD / 94% = $87000 / 94% = $92554
For the owner occupant buyer, the minimum acceptable net to HUD is 89% of list, or $89000 for the $100K list price. If the owner occupant buyer arranges outside financing and does not ask for any closing cost assistance, then
Bid Price = NET to HUD / 94% = $89000 / 94% = $94680
So, from all this arithmetic, the lowest bid that will still meet or exceed HUD’s minimum acceptable net is about 95% of list price for the owner occupant and about 93% of list price for the investor purchaser.

Of course, this only applies to the first 45 days that a HUD property is on the market. After 45 days on the market, HUD’s minimum net is reduced and HUD will consider offers that net less than 87%/89% of list price.

while this calculation is interesting, at the end of the day (IMHO), the investor should focus on figuring out what he can pay and make money on the deal for whatever his exit strategy is. if HUD does not accept that, then just move along to the next deal (and wait and resubmit later).

in my case, my first offer was my low-ball. I had a slightly higher number that was going to be my best and final offer.

HUD is really not much different than any other seller; if you can find a price you agree on, then you have a deal. Every Seller has a reason for what his bottom/lowest price will be; some realistic and some not.

I agree. Because HUD properties are sold in a sealed bid auction, a prospective buyer in a competitive market needs to make his maximum acceptable offer from the start.

Because Ramon75 asked if it was possible to negotiate with HUD, his question suggested that he wanted to pay less than full list price. When you said “the magic number was 12% below list”, you weren’t wrong, but you did not explain that the magic number is really the minimum net sale proceeds acceptable to HUD and not the amount of his bid.

I just felt that the process of getting from your 88% number to my “95% of list” bid amount needed to be clarified for the visitors to this forum who have little or no experience with HUD foreclosures.

In reviewing the recent bid results for this area, I noted that 100% of the properties sold for over the listing price.


I’ve bought a few HUD’s (am doing one now), and can tell you that if you can get by all the headaches, they can be a good deal. The key, though, is patience as you will undergo the “hurry-up-and-wait” syndrome with HUD most of the time. With my current acquisition, HUD rejected my initial paperwork due to things not being done EXACTLY the way they wanted. I had just two days to get the errors corrected, or they would void my contract. Since that fiasco, I haven’t heard a peep from them, but 1-2 weeks before closing, I’m sure I’ll get bombarded with more crap from them. Also, my agent said they are running behind (not enough field closers and too many properties), so it will go past the 45-day close limit HUD imposes. Even though it’s HUD’s fault, my agent said they’ll still require the buyer to pay the $25(?)/day penalty (and get reimbursed the amount later).

In my area, HUD homes routinely get 10+ bids on them during the GENERAL period (if they make it that far). For my most recent acquisition, I started bidding on 3-6 homes/week back in late June and finally got this one in late-August. I missed out on one during that period by only $200, and several more by <$1,000. It’s just a numbers game.

BTW, my current one was bought for $92,300 (Net-to-HUD). It’s a 3/2 built in 2003, and will require about $2k in repairs. It’s in a neighborhood where the builder is still building. The EXACT same floor plan sold by the builder today there has a BASE price of $135,990. I can sell mine for $10k less and still make a decent profit, but I may just hold it as a rental.