The Owner Occupants Guide to Purchasing HUD Homes

HUD homes are a great opportunity for owner-occupied buyers to get a great deal. HUD’s process is a little different from most sellers, but if you know how the HUD system works, it is not hard to buy HUD homes. I am a HUD listing broker and I have sold hundreds of HUD homes in the past five years. Purchasing HUD homes can be scary, but if you know the system and know what to expect you can get a great house for a great price.

What are Hud Homes?

In the last year, it has become much more difficult to find a great deal on a house. Many buyers looking for a home are a bit overwhelmed at how fast the market has changed due to low inventory. There are still some good deals out there and HUD homes have some of the best prices around. HUD homes were purchased with an FHA loan and then foreclosed on. Because the government insures FHA loans, many of these properties go back to the government and become HUD homes. Purchasing a HUD home is a great way for an owner-occupied buyer to buy a home because HUD gives priority to owner-occupied buyers over investors. This article focuses on the owner-occupied process for HUD homes, but I also detail the investor process in my Investors Guide to Purchasing HUD Homes.

Where can you find HUD Homes for sale?

The most important thing to know about HUD is HUD lists every house they have for sale on their website and anyone can view them. It is very simple to search for homes on The search function is on the home page; enter the state and any other search criteria. You can narrow it down to city, zip code, county, or address; you can search for any of those items one at a time or all at once. Only active HUD listings are listed on If a home is under contract, it will not show up in your searches. A property may not be on the site if there are price changes or a new appraisal ordered by HUD. If you cannot find details on a HUD home, your Realtor should be able to figure out the status. There are some cases where a HUD home is only available to a special group of buyers and in those cases, the home may not be in the MLS.

Here is a great article on how to buy homes from the MLS.

Check out the video I created below to see how to use the HUD website where HUD homes are listed for sale

What makes HUD homes different from other types of listings?

Purchasing HUD homes is very different from purchasing any other type of property. The offering process, contract process, inspection process, closing process, and loan process are all a little different with HUD. I will go into detail on how to bid, on how to close, and on everything in between with a HUD home. I hope this guide and your local Realtor can help you successfully purchase a HUD home! State contracts are not used on HUD homes and HUD does not pay costs that many sellers typically pay.

HUD uses different asset management companies to sell their homes

HUD uses asset management companies to sell and manage HUD homes. HUD uses property preservation companies to maintain HUD homes. An asset management company overlooks the bid process, contracts, and helps close HUD homes; they also hire local real estate agents to list HUD homes. Property preservation companies take care of routine maintenance, winterizations, and emergency repairs on HUD homes. Each region in the country has different asset management companies and different preservation companies. Every company has different policies on the sales of HUD homes; you may not encounter the exact same procedures from different companies.

Update 2016: Most of the country now has one asset management company per region. 

Why are some HUD homes on but not on the MLS?

HUD will list properties differently depending on the repairs needed and potential buyer’s qualifications. On uninsured properties, HUD will list them on for a seven-day lottery period, but the only eligible bidders are non-profits and government agencies. During these seven days, some asset management companies list the home in MLS and others do not. Another program HUD uses is the Good Neighbor Next Door Program (GNND). In this program, HUD sells designated houses to firefighters, police officers, teachers, and EMTs. Many special requirements must be met to purchase a home in this program, which I will discuss later. One of the requirements is that you must occupy the home for three years. Since the property is not eligible for all buyers, some asset management companies list them in MLS and some do not. If you see a property in Hudhomestore, but not in MLS, check to see who the eligible bidders are. The information is listed on at the top of the property listing.

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When can owner-occupied buyers bid on HUD homes?

HUD has an initial bid period for owner-occupants, non-profits, and government agencies only. To simplify, I will refer to this bid period as the owner-occupied bid period. HUD classifies properties into different categories based on condition and those properties have different bid periods. Some properties qualify for FHA financing and some do not, depending on the dollar amount of repairs needed. The properties that go FHA are listed as insured and the properties that do not are listed as uninsured.

If a property is listed as insured, there is a 15-day owner-occupied bid period, with a 10-day initial bid period. HUD accepts bids for the first 10 days and then reviews bids the next business day. If HUD does not accept a bid in the first 10 days, the home will go to a daily owner-occupied bid period. HUD reviews all bids the next business day after they are received until the property has been on the market for 15 days. On the 16th day after the home has been actively listed, investors are able to place a bid on the property. HUD lists the exact amount of time left in the bid period at under period deadline.

If a property is uninsured, there is an initial five-day owner-occupied bid period. HUD reviews all bids received on the next business day after the fifth day and if no bids are accepted, investors can bid on the sixth day.

If you see a property still on the day after the bid period has expired, it does not mean the home is still available. HUD reviews bids the next business day and if the bid period ends on a weekend, HUD will allow bidders to place bids after the initial bid periods have ended. HUD homes may also appear on Hudhomestore for a short time in the morning after a bid period ends because HUD has not reviewed the bids yet. HUD removes them after they accept bids and it can take some time to review bids on thousands of properties across the country.

Here is a breakdown of the bidding timeline.

For insured homes:

  • Fifteen-day owner occupant, government agencies, and non-profit only bid period. HUD collects all the bids for the first ten days of the bid period and reviews them on the next business day. For any bids received for the next five days, HUD reviews the following day. (Not sure if they review them the same day or the day after the bid is received during this time.)
  • Investors can bid on the sixteenth day the home has been actively for sale. You can see this date by looking at the period deadline. Investors can bid on the next day after this deadline.
  • If the price is lowered, the owner-occupant period does not start over. Investors can bid right away.

For uninsured homes:

  • Seven-day lottery bid period. Government agencies and non-profits only can bid. The home is listed on Hudhomestore, but not on MLS.
  • Five-day owner-occupant, government agency, and non-profit only bid period. HUD accepts bids the first five days and opens them the next business day. Investors can bid on the sixth day.
  • If the price is lowered, the owner-occupant period does not start over. Investors can bid right away.

How long does an owner-occupant have to live in a HUD home?

HUD requires an owner occupant bidder to live in a HUD home for at least one year after they purchase the home. HUD allows an owner-occupant 60 days to repair a home before the occupant must move in. HUD only allows individuals to purchase a HUD home as an owner-occupant once every two years. You can purchase a HUD home as an investor as often as you like.

What does FHA insured with repair escrow mean on HUD homes?

HUD does not allow any repairs to be made to properties and typically does not repair any of their properties. However, HUD wants to sell homes to owner-occupied buyers and many HUD homes need some repairs that would not allow them to qualify for FHA financing. HUD uses an FHA repair escrow to help owner-occupied buyers get into these homes. The amount on under FHA repair escrow is the amount that a HUD appraiser has determined it will take for the home meet FHA guidelines. The escrow could be $0, in which case the home does not need any repairs in order to go FHA. If there is any other amount, the home will have to have some work done to qualify for an FHA loan.

The escrow repair amount is added to the buyer’s loan at closing, it is not a gift from HUD. The work is to be done after closing by licensed contractors within 90 days, and the lender will pay out the escrow amount directly to the contractors.

The details of each item that needs repair are listed under the addendum on The total repairs cannot exceed $5,000 for the FHA repair escrow. HUD adds a ten percent cushion if the repairs cost more than expected, so technically there could be $5,000 in repairs and a $500 cushion for a total escrow amount of $5,500.

Update: HUD no longer lists a repair escrow because they stopped allowing FHA buyers to use the HUD appraisal. Buyers must now get a new appraisal and determine any escrow repairs from it. 

Can the repair escrow amount be changed on HUD homes?

Yes! It takes a bit of work, but the repair escrow amount can be changed. If you find out through an inspection or other means that a repair is not needed or more repairs are needed, you can adjust the escrow amount. HUD will need a letter from your lender explaining the need for the change and two bids from contractors detailing the amount of the new requirements. Again, the total escrow repairs cannot exceed $5,000 on HUD homes.

Can I use the HUD repair escrow on other types of loans?

No, the repair escrow can only be used on FHA loans.

Can you use FHA 203k rehab loans on HUD homes?

If a home needs more than $5,000 in repairs to qualify for FHA, there is still an FHA option. The FHA 203k rehab loan is a great program that allows a buyer to make repairs after closing and finance them into their loan. There is no limit to the dollar amount of repairs that can be made, but it can be a complicated process. This program can be used on a house with less than $5,000 in repairs as well if the buyer wants to make more repairs than FHA requires. The loan can also be used on uninsurable homes as long as it is marked on that an FHA 203k is being used.

A 203k loan requires two appraisals, one for the as-is value and one for the after repaired value. The loan also takes longer to close and has a few more fees than a normal loan, but it is a great option for those looking to make major repairs.

How does an FHA 203k loan work?

What is the Good Neighbor Next Door Program?

The Good Neighbor Next Door Program (GNND) is a HUD specific program geared towards EMTs, teachers, firefighters, and law enforcement. HUD designates certain houses for this program and they will give a 50% discount to qualified buyers! In order to find these properties, go to and click on Good Neighbor Next Door Program in the blue box. Then click on your state on the map to the right of the blue box. This will pull up all GNND properties in your state. Do not be surprised if there are not many properties available as HUD designates very few properties for this program.

HUD also has very strict policies regarding who can bid on GNND properties. The buyer must be a full-time employee in their field, work within a certain mileage of the property, and live in the property for three years. Bidding on a GNND is very simple. Your agent submits the full price in the GNND bid period and if HUD accepts your bid, they automatically discount the property 50%. These properties are not always in MLS, so check frequently to find these listings.

HUD does not pay a commission on these properties to the listing or selling agent. Many times the agent representing the buyer will require the buyer to pay a commission directly to the buyer’s agent. If more than one buyer bids on these properties, HUD will randomly select the winner.

How does an owner-occupied buyer bid on a HUD home?

Every buyer must use a HUD registered real estate agent to submit a bid on a HUD home. If you are shopping for an agent and you are interested in HUD homes, ask your agent if their company has a NAID number. If they do not have a NAID number, they cannot submit a bid for you. Any office can get a NAID number from HUD, but it can take up to six weeks. If your agent’s office has a NAID, they can register on and submit a bid for you very easily. The bid is submitted online and no documents are uploaded with the bid. HUD requires the purchaser’s social security, tax identification, or EIN number in order to submit the bid.

What happens after my bid is submitted to HUD?

HUD will only respond to your agent through email if your bid is accepted. If your bid is not accepted, HUD will not notify your agent, but your agent can look up the bid status. Your agent has to log in to and go to bidder functions. They can search for bids that they submitted and the bid status will be listed on HUD. The system may say reviewing bids, accepted, canceled, or other bid accepted. If your bid was not accepted and no other bids were accepted, you can bid again as many times as you like. In some cases, HUD may counter your offer. Their counter is only a notification informing you of what net price HUD will accept. If you enter a bid that nets HUD the counter price or more, they will accept it as long as no one else submits a higher bid.

How low of a bid will HUD accept?

A buyer can submit any bid amount they want on a HUD home, but HUD has certain guidelines for what they will accept. HUD hires asset management companies to select agents, look over properties, market HUD homes, review contracts, and monitor bids. Those asset management companies are given guidelines from HUD on what bid amount they can accept. Usually, they are allowed to accept a net amount around 10 to 12 percent less than asking price. The net amount is what HUD will receive after commissions and closing costs are paid. HUD always pays the listing broker three percent commission and the selling broker can get up to three percent commission. If HUD is paying a six percent commission total, the net amount that they will accept has dropped to 4 to 6 percent less than asking price. If the buyer wants closing costs, the amount drops even further. HUD will accept different amounts in different areas of the country; these results are typical in Colorado.

Here is an article with more information on different loans with low down payment options.

Is it worth it to submit a bid I do not think HUD will accept?

Yes! The first reason to submit all bids is that HUD asks all bidders if they can hold their offer in a backup position. If an accepted offer cancels their bid, HUD will automatically accept the next highest bid as long as it is an acceptable amount. It does not hurt to mark this box, as you are under no obligation to continue with the contract if HUD accepts your bid and you no longer want the property. If HUD reduces the price, they will review bids that they have already received to see if any are now an acceptable amount after the price change. Your low bid could be accepted before anyone else gets a chance to submit a new bid after the price change. There are also occasions when a low bid that does not meet HUD guidelines is accepted. This usually happens on aged assets that have been on the market for over 90 days. The asset management company can ask for special approval from HUD on these low bids. When this happens, your agent may receive a counter from HUD in the morning and then an acceptance later in the day. This is because the asset management company could not accept the bid right away, but they sent it to HUD and HUD approved the bid later in the day.

How do you send your contract to HUD?

If HUD accepts your bid, they will notify your agent by email and give your agent instructions on how to send the paperwork to HUD. Your agent will have 48 hours to send the original documents to HUD; the 48-hour period is extended for weekends and holidays. HUD has their own sales contract, addendum, and disclosures and they require a pre-qualification letter or proof of funds letter if you are paying cash. Your earnest money must be sent with the package (you may not have to send earnest money with the new buyer select program). HUD requires certified funds for your earnest money. Your agent should be able to help you with the package and explain all the details. There are a couple of very important documents to pay attention to that I will go over in the following sections. If your package will be late, make sure your agent notifies HUD; HUD may give you a little extra time. If your package requires corrections, HUD will email your agent and usually, corrections are due within 24 hours. Make sure your agent is checking their email frequently!

How do owner-occupied buyers get their earnest money back on HUD homes?

HUD has very strict policies on earnest money returns and forfeitures. Investors have a very difficult time getting their earnest money back, but it is a little easier for owner-occupied buyers. HUD lists many reasons why they will return an owner-occupants earnest money, the most common being loan denial. When you sign your contract, there will be a form called earnest money forfeiture policy. Make sure you read this carefully and understand exactly under what conditions HUD will return earnest money to buyers. The earnest money amounts are $500 for contracts under $50,000 and $1,000 for contracts over $50,000.

Is a HUD home that I buy for my children considered owner-occupied?

The only way a buyer can be considered owner-occupied is if the person living in the home will be on the deed when HUD sells the home. That occupant has to live in the home for at least a year and cannot buy anymore HUD homes as an owner occupant for two years.

How serious is HUD about the owner-occupant period?

Very serious! HUD makes owner-occupants sign a document confirming that they are an owner-occupant. If they are found to be an investor, HUD can fine them $250,000 with prison time. It is a federal crime to misrepresent yourself as an owner-occupant when your true intention is as an investor. Not only can the buyer be fined and sent to prison, but also the buyer’s agent and their entire office can lose their ability to sell HUD homes. If you think you will not be caught, remember, many investors who would love to bid on HUD homes but cannot because of owner-occupant rules, will have no problem turning in other investors that break the rules. Listing agents are also encouraged to keep an eye out for investors posing as owner-occupants.

How do inspections work on a HUD home?

HUD has a different inspection policy than most REO sellers. When HUD lists a property, they do not turn on any of the utilities. When HUD signs your purchase contract, they will email a utility turn-on request form to your agent. You have 15 days from the time HUD signs the contract to do your inspection. They allow a three-day window to turn on the utilities. It is usually best to make your three-day inspection window as late into the 15-day inspection period as possible because you have to submit the form to HUD’s property preservation company, wait for them to approve it, and then get utilities turned on in your name. It can easily take over a week to get the form back and get utilities turned on, so make sure your agent submits the request form as soon as possible.

HUD does not pay for utilities or any turn on fees and they do not de-winterize the property. In fact, if you live in an area that requires winterization, you will have to send in $150 with your turn on request form if you want to turn on the water during the winter season, which is typically October 1 to April 30. The fee is for the property preservation company to re-winterize the property after you complete your inspections. If HUD found the property’s plumbing system did not hold pressure, they will not allow you to turn on the water (the air test is done before listing).

If you find issues during your inspection, you have two choices. Cancel the contract or proceed to close, knowing that HUD will not repair anything. They are very clear; HUD homes are sold in as-is condition and HUD will not make any repairs even if the lender requires it. They are also very clear that they will not return your earnest money if you find inspection issues that cause you to cancel your contract. As I said earlier, HUD does an inspection before listing each property and the basic results are listed on You will find the inspection under addendum on Hudhomestore. The document called PCR lists the general condition of the plumbing, electric, HVAC, and roof. Do not depend on these inspections to be perfect! Many times the HUD inspectors are only able to do a visual check since the utilities are not on.

How to get a great deal on a house.

Appraisals for non-FHA loans on a HUD Home

HUD does an appraisal on every home before they list it. HUD previously listed their homes at the appraised value but they recently changed their policy. All new loans including FHA must now get a new appraisal if required by the lender. If your appraiser requires the utilities to be on for the appraisal, you have to follow the same procedure to turn on utilities as you did for the inspection. The best practice is to schedule the appraisal at the same time as the inspection if possible. The biggest issue I see with appraisals is plumbing. HUD inspectors will do a pressure check on the plumbing system before the home is listed. The pressure test will fail if there is a leak anywhere in the system and HUD will not allow you to turn on the water for your inspection or appraisal. If the system fails the pressure test and your appraiser requires the water to be on, you are out of luck. HUD will not repair the lines and no repairs can be made before closing. Please pay attention to the HUD inspection before bidding and talk to your lender about the appraisal process. I have seen many deals fail because the water could not be turned on for appraisals on HUD homes. There are a few solutions to a plumbing problem: a lender can escrow for plumbing repairs or a portfolio lender may be able to do the loan without utilities being on.

The other issue that can come up, but rarely does on HUD homes, is an appraisal coming in low. Usually, HUD homes are priced low enough that an appraisal value is not an issue. If the appraisal does come in low or the appraisal requires repairs, HUD will not make repairs or price adjustments. Again, the only choice will be to cancel or continue with the original bid price and terms.

What is an appraisal?

How do you close on a HUD home?

Different asset management companies have different closing periods. Some allow cash buyers 30 days and financed buyers 45 days to close. Other companies allow 45 days for cash and financed buyers. HUD will charge you if you must have an extension due to your lender or other fault of the buyer. Typically, the fee is $375 for a 15-day extension day but can be lower for lower-priced properties. The exact fee schedule is listed on one of the HUD forms you will sign. HUD will grant two extensions, but if a third is needed, HUD will need proof that closing is imminent or they will not extend the contract.

How does title insurance work on a HUD home?

Another cost that HUD does not pay that most sellers do pay is title insurance. Make sure you factor this cost into your figures when bidding on a HUD home. HUD does not require title insurance, but I highly recommend you get it. HUD does the best they can, but they are dealing with other lenders homes that were foreclosed on and had FHA financing. Sometimes a title issue will slip through the cracks and if you do not have title insurance, it can be a nightmare to get it cleared up. I sold a HUD home a few years ago, that was owned by a large bank. Six months after the sale, we learned the bank did not have clear title. The title company was able to clear it up, but if the buyers had not purchased the insurance, it would have been on them to figure out clear title.

Can you make repairs prior to closing on HUD homes?

HUD is very clear that they will not make any repairs prior to closing and the buyer is not allowed to alter the home in any way before closing. Some buyers may think it is not a big deal to fix a small plumbing leak or do some painting before closing. It is a very big deal! HUD homes are federal property and it is a felony to make any alterations before you own the home. If HUD finds out that any repairs were made, they usually cancel the contract on the spot, take the buyers earnest money, investigate the buyer’s agent to see if they knew about it, and then consider charges depending on the severity. Do not make any repairs, change the locks, remove signs, or remove anything from the home before closing!

How does the buyer select closing process work on HUD homes?

HUD just introduced a new program on their HUD homes. HUD previously used their own title companies to sell HUD homes, although the buyer could use their own title company for their side of the transaction. With the Buyer Select program, HUD allows the buyer to choose the title company for the entire transaction. With most HUD asset management companies, the earnest money is now delivered to the listing agent who delivers it to the title company. The buyer is allowed to choose any title company they would like to close the transaction and HUD will get them registered in the system once a bid is accepted.

Those are the basics for owner-occupants looking to buy HUD homes. Purchasing HUD homes can be difficult because there are so many things to know, but they can be a great deal. If you do not feel I addressed your question, please feel free to comment or email me with any questions about HUD homes or my investment strategies!