I am a HUD listing broker and I have written many articles on buying HUD homes. I cover many topics in my HUD articles, but I am asked over and over about the owner occupant rules. HUD has very unique and specific rules on who can bid on their homes and when they can be bid on. For more detailed information on the HUD process check out the owner occupants guide to HUD homes and the investors guide to purchasing HUD homes.
When can owner-occupants bid on HUD homes?
Owner occupants have a distinct advantage when bidding on HUD homes. HUD allows owner-occupants to bid on HUD homes before investors can bid on HUD homes. On FHA-insured HUD homes, there is a 15-day owner occupant only bid period. Without going into the detail that I do in my other articles, FHA-insured HUD homes can get an FHA loan if the property needs less than $5,000 in repairs. On FHA-uninsured HUD homes, there is a 5-day owner occupant bid period. FHA-uninsured HUD homes have more than $5,000 in repairs needed and cannot go FHA unless you use an FHA 203K loan.
When can investors bid on HUD homes?
With FHA-insured HUD homes, investors can bid on the 16th day after the home has been listed. On FHA-uninsured homes, investors can bid on the 6th day after the home has been listed. Investors need to be careful when bidding on HUD homes because HUD has serious penalties for investors pretending to be owner occupants. An investor who is caught pretending to be an owner occupant can face up to 2 years in federal prison and up to a $250,000 fine. For more information on my investing strategy which includes fix and flips and long-term rentals check out this article.
Who does HUD consider an owner-occupant?
HUD has very specific rules on who an owner occupant is. To buy a HUD home as an owner occupant you must live in the home more than 50% of the time. You can’t buy a HUD home as an owner occupant if you are buying a second home or using the home as a vacation house unless you will live there more than 50% of the time.
Not everyone who will be buying the HUD home has to occupy the home for at least a year. Just one person who is on the deed at the time of the purchase has to occupy the home. If parents are buying a HUD home for their child, they would be considered owner-occupants if the child was on the deed and would be an owner occupant.
How long do owner-occupants have to live in a HUD home?
An owner-occupant must live in a HUD home for at least one year before they can sell or rent the home. HUD does allow an owner occupant 60 days to repair a home before they move into the home, but they still must occupy the home for at least a year after they move into the house. In certain circumstances such as a medical emergency or a job relocation, you an owner occupant may be allowed to move sooner than one year.
Under what circumstances can an owner-occupant sell a HUD home prior to living in it a year?
HUD allows owner-occupants to move out of a HUD home prior to living in the home for a year if they meet certain guidelines. It is always best to call HUD if you have to move out of a HUD home early as an owner occupant. If an owner occupant has a change in location for a job, a death in the family, divorce, loss of a job or other extenuating circumstances, HUD may ease the owner occupancy requirement.
Why does HUD give priority to owner-occupants over investors?
HUD homes are homes that were bought by someone using an FHA mortgage. The mortgage was foreclosed on and since FHA is a government program, the property went back to the government. FHA is a program sponsored by the government that is meant to allow more owner-occupants to buy homes. The government transfers the idea of getting more owner occupants buying homes into the HUD home program. HUD would prefer if all of their homes were bought by owner occupants, but that is not possible.
Can investors still get a good deal on HUD homes?
Even though owner occupants are given priority on HUD homes, investors can still get a great deal. FHA-uninsured homes are a great opportunity for investors to get a great deal. These homes usually need a lot of work and many owner occupant buyers cannot get a loan on these properties.
Investors also need to be aware that many owner occupants cancel on their HUD contracts. If an owner-occupant cancels on their HUD contract, that may allow an investor to bid on the home.