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October 29, 2010 12:41 PM

Buying a HUD home can be tricky: finding the perfect agent, property, and online auction. Of course, the deals may outweigh the complications for some home buyers.

A HUD home is nothing more than a house that was purchased with an FHA loan that has since fallen into foreclosure.

(I’m not sure why these homes aren’t called FHA Foreclosures, which would be more intuitive for home buyers and investors, but the Department of Housing and Urban Development is the federal office that takes ultimate responsibility for FHA and its home loans gone wrong.)

Buying a HUD home is different from buying another type of foreclosed property. For starters, HUD homes are sold exclusively online in an auction process known as an offer period.

You may make an online offer during the offer period. At the end of the offer period, all offers are opened and considered to be received simultaneously. The highest acceptable net bid is then accepted, and the buyer’s agent is contacted.

If the home isn’t sold in the initial offer period, buyers may submit a bid any day of the week, including weekends and holidays. Bids are opened the next day.

There used to be a different site for different areas of the country, but its been consolidated into one website: www.hudhomestore.com .

How can you navigate the website and find the right home to buy? Follow these four tips for buying a HUD home:

1. Find the right real estate agent. Only real estate agents who are registered with HUD may represent home buyers and investors in the purchase of HUD homes online. To find the right agent, you can search through the website that lists HUD homes in your area and find out which agents represented the most winning bids. Interview the top two or three agents. Be sure to ask how long the agent has represented buyers and investors, how the process typically works, whether the agent will accompany you to inspect the property, and what special knowledge the agent has garnered from writing so many winning bids.
2. Inspect the property before making an offer. The local listing broker (who should be listed on the HUD home website) can gain access to the property and show it to you. However, you dont need to call the listing broker to see the house with your agent. Any HUD registered agent can gain access to a HUD home. When youre inspecting the property, take a lot of notes and photos of the property so you can be mindful of any improvements that need to be made when constructing your offer.
3. Make an offer. The offer process on a HUD home is probably different from what youre used to. Offers can be cancelled with no earnest money forfeiture. Once an offer is submitted, it can be cancelled before the HUD agent opens the bid electronically, or after by sending an email to the company managing the home. Until the contract is signed, the earnest money is not in jeopardy, so there are a few days after the bid is accepted to cancel.
4. Be ready to close on your HUD home. Right now you might forty-five to sixty days to close on your HUD home, but HUD is moving toward 30-day contracts so get your financing together ahead of time. You may be able to qualify for FHA financing or special FHA deals. like the$100 Down Payment Incentive program or the Good Neighbor Next Door program. which offers a discount for HUD homes to law enforcement officers, teachers, firefighters, and emergency medical technicians who meet eligibility requirements. But it helps if you get your loan documentation together ahead of time, including your W-2; your paycheck stubs; your tax returns; copies of your savings, investment, and retirement accounts; and documentation of other assets and liabilities. Youll need to provide copies of your drivers license and other identifying information. Create a file for these documents so theyre ready when you are. You will also have to submit a prequalification letter with the sales contract in order for it to be accepted. The letter must indicate the buyer is qualified for the amount of the contract, the type of financing and any assets that have been verified for closing.