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What is a HUD Home? Here’s What You Should Know

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If you’re looking for a home at a low price, one option is looking for HUD homes in your area. The U.S. Department of Housing and Urban Development (HUD) makes these foreclosed homes available to the public for purchase, but the process can be more complicated than a regular home purchase.

In this article:

What is a HUD home?

A HUD home is a one- to four-unit home that has been foreclosed because a homeowner with a loan insured by the Federal Housing Administration (FHA) defaulted on their mortgage. HUD then sells the homes to the public to recoup its financial losses from the foreclosure.

HUD foreclosed homes may also be called HUD REO (real estate-owned) homes. You’ll need to use a HUD-approved real estate broker to bid on HUD properties.

Pros and cons of buying a HUD home

If you’re considering buying a HUD home, there are important advantages and disadvantages to think about.


  • Low down payments. You may be able to buy homes for sale for as little as $1 for select properties through HUD’s Dollar Homes initiative. Alternatively, you can use other low down payment programs and put down as little as $500 to $2,000 to bid on a HUD home.
  • Lower sales prices. HUD will generally accept an offer as long as it is within 85%-88% of the listing price. A real estate agent experienced in selling HUD homes can help you make the right offer based on market research.
  • Allowances to pay for closing costs. HUD pays up to 5% toward closing costs. On a $200,000 home, that translates to $10,000 to cover lender, title, appraisal and credit report fees.
  • Priority bidding over investors. Unlike other foreclosed resales, HUD requires that first priority be given to primary residence buyers who intend to live in the home for at least a year. The bidding period only lasts for a set period, so the sooner you make your bid, the better your chances of not having to compete against investors.


  • As-is sales could mean significant repairs. HUD homes are sold as is with no warranty about the condition of the home. Repairs usually cannot be completed until after the property has been purchased.
  • There may be a lot of competitive bidding. Because HUD listings are sold at auctions at deeply discounted prices, you may be outbid by cash buyers.
  • You could lose your earnest deposit if you cancel. HUD assumes a bidder has done their homework before making an offer. Unless HUD rejects your offer, your earnest money is at risk if you decide to walk away from the purchase.
  • May not qualify for a standard mortgage. Because HUD homes are sold as is, traditional financing may be harder to get since HUD generally won’t allow repairs to be made before closing. Some lenders may require certain repairs before lending you money.
  • Home inspection contingencies are not allowed. You need to do a home inspection before you bid on a HUD home to avoid the risk of losing your upfront money if the home turns out to be a repair nightmare.

Where to find a HUD foreclosed homes

The best way to find out if there are HUD houses for sale in your area is to visit HUD’s property search portal online. You can also call (800) CALL FHA if you want to talk to someone directly at the FHA about buying a HUD home. To find a HUD-approved real estate broker in your area, use the HUD broker search tool.

HUD properties are sometimes made available to local government or nonprofit organizations for sale before they’re offered to the general public. Most of these homes available through local government and nonprofit agencies are in designated revitalization areas with strict income requirements. Contact the housing agencies in your area to find out if they currently have any HUD homes for sale.

6 steps to buy a HUD foreclosed home

Ready to get started? Here’s a step-by-step guide to buying a HUD home.

1. Find a HUD-approved real estate broker to work with

You can make offers on HUD homes only through a HUD-approved real estate professional, so you’ll want to do your homework and find the right real estate agent early on.

2. Get a home inspection before you make an offer

In most cases, you’ll need to make a deposit of $500 to $2,000 when bidding on HUD foreclosed homes. If you decide after your bid is accepted that you don’t want the home, you could lose that initial investment. The $300 to $500 or so it costs to get a home inspection could reduce the odds you’ll make an offer on a home that needs more work than you’re willing to take on.

3. Act quickly

If you plan to use the home as a primary residence, you’ll need to do put in your house bid during the exclusive period offered to owner-occupant buyers. After that period expires, unsold properties are available for purchase by anyone, including real estate investors or house flippers.

4. Qualify for a mortgage loan

Although HUD homes are the result of foreclosed FHA loans, HUD guidelines don’t require you choose FHA financing to buy a HUD foreclosed home. There is also no such thing as HUD financing; you can choose any of the following programs when buying a HUD home.

  • Conventional financing. Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs allow for a down payment as low as 3%, although the credit score minimum is a bit more stringent at 620.
  • FHA loans. With credit scores as low as 580 and a down payment of 3.5%, an FHA loan offers the easiest qualifying guidelines. With a 10% down payment, buyers may be able to purchase a home with a credit score as low as 500.
  • VA loans. The U.S. Department of Veterans Affairs guarantees loans made by VA-approved mortgage lenders to help veterans or active-duty military personnel buy homes. Most VA loans don’t require a down payment or a minimum credit score, although many lenders require a minimum credit score of 620.

5. Qualify for a special HUD home purchase program

There are several specialized HUD home purchase programs. Each has income and location restrictions, so check eligibility requirements with your real estate agent before making an offer. Here’s an overview of each program:

  • Good Neighbor Next Door program. If you’re a teacher, firefighter, emergency medical professional or a law enforcement officer you may be eligible for up to a 50% discount on the price of a home in special areas designated as revitalization areas by HUD.
  • Nonprofit purchase programs. Community and faith-based nonprofit organizations may be given the opportunity to purchase HUD properties at discounts of up to 30%. The organizations can turn around and sell them to low- to moderate-income first-time homebuyers.
  • HUD’s Dollar Homes. The government homes for $1 initiative gives local government agencies the ability to purchase HUD properties for a sales price of $1. The agencies will then fix up the homes and sell them to low- to moderate-income residents. HUD requirements for these properties can vary based on location.

6. Close on your HUD home

Once your bid is accepted, the mortgage process is similar to what you would go through if you bought any other type of home. The lender verifies your income, assets and credit history to provide final loan approval, and orders a property appraisal to confirm the home’s value. The title to the property is searched to make sure there are no liens or judgments that could affect your ownership. If all goes well, you’ll sign your closing papers, and walk away with the keys to your new home.


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