How do I make an offer to buy a HUD home in Arizona?

Before homes are listed for bidding, HUD orders an appraisal and an inspection on a house (according to FHA appraisal guidelines).  Each home generally falls into three categories: 1) an insurable property (IN), 2) an insurable with repair escrow property (IE), and 3) an uninsurable property (UI).

An insurable property is a home that meets the insurance requirements for an FHA 203(b) mortgage.  An FHA 203(b) mortgage is FHA typical 30 year fixed-rate mortgage that most first-time homebuyers use to finance a home.  Generally, no repairs are necessary for HUD to insure an FHA loan for the buyer.  Offers from buyers with other-than-FHA financing such as VA loans, conventional mortgages or cash buyers are also acceptable for this type of property.

An insurable property with a repair escrow refers to a home that is also eligible for a 203(b) mortgage with a repair escrow.  It is important to note that the buyer must accept the repair escrow and should add the amount of the repairs to the offer price IF he or she is financing the purchase with an FHA 203(b) loan.  

The repair escrow is an account established upon the closing of the purchase of the home for the amount of the repairs on the property.  It is the lender’s responsibility to inspect and distribute the monies as necessary within 30 days of the close of escrow.  These costs and repairs are included in the buyer’s loan amount and become part of the monthly house payment.  Offers from buyers with other-than-FHA financing such as VA loans, conventional mortgages or cash buyers are also acceptable for this type of property.

An uninsurable property are homes generally needing extensive repairs and deemed by HUD as not eligible for FHA insurance in their as-is condition.  Other-than-FHA financing is required.  However, HUD will permit the purchase of certain properties with FHA 203(k) financing (rehab mortgage where a lender may finance the repairs of the home into the mortgage). 

When HUD first lists a home, bids accepted within the first 10 days are restricted to owner-occupied buyers only.  Owner-occupied buyers may make a bid within the first 5 days.  HUD will generally award the home to the bidder with the highest acceptable net amount. 

If there are no acceptable offers within the first 5 days, the bidding process on the home will be opened up on a daily basis for a period of no more than 5 additional days.  At the end of each day within this time frame, HUD will select the highest acceptable net owner-occupied offer.  This does not include weekends or federal holidays.  At the end of this 10 day period and the property has not sold, HUD will review all the offers received during this time frame.  If any acceptable investor bids have been received and no acceptable owner-occupied bid was received, the highest acceptable net amount from an investor is selected.

Should the home not sell by Day 10, the bidding process is opened up to all bidders on a daily basis.  This includes weekend bids (which opens up on the following business day).  Again, the highest acceptable net bid is accepted.  After 45 days and the property remains unsold, a lower minimum acceptable bid may be established.

Should an owner-occupant bidder submit multiple offers on several properties, HUD will consider the offers as follows:  If the buyer is the sole acceptable offeror on a single property, that bid will be awarded without consideration to other offers.  Otherwise, the offer that provides the greatest net return to HUD will be awarded.  Should multiple offers be made on a single property (assuming that they have not been cancelled), the offer with the highest net amount to HUD will be awarded.

All HUD homes are sold on an “as-is” basis.  In other words, what you see is what you get.  HUD will not make any repairs or warranties on the properties.  Furthermore, HUD will not guarantee the condition of any house.   

Therefore, it is advisable for any buyer to have a professional home inspection on the home.  If an offer is accepted, the buyer has 15 days to complete any inspections.  It is important to note that should the utilities need to be turned on, any expense incurred is the buyer's sole responsibility.  Also, should a buyer find any defects in the existing home, HUD will not pay for any needed repairs.