Phoenix HUD Homes

What is a Phoenix Arizona HUD home?

HUD, an acronym for the United States Department of Housing and Urban Development, is the federal agency that oversees the resale of “HUD homes” in Phoenix, Arizona. HUD homes refer to foreclosed properties that were conveyed to HUD when a homeowner failed to make payments on their FHA (Federal Housing Administration, a sub-agency of HUD) insured mortgage.

The process of buying a Phoenix, Arizona HUD home differs from other residential real estate in the Phoenix area. In general, it is important to know the requirements that HUD mandates its potential clients to meet, how offers are presented and the nuances that each contract may present, and the different types of properties that HUD sells to the general public.

HUD has classified Phoenix area home buyers into two categories: 1) owner-occupied buyers and 2) investors. An owner-occupied buyer is a person that will occupy the property as his or her primary residence within 30 days of the close of escrow. An investor is essentially everybody else—people looking to buy real estate as an investment, someone looking for a second home or someone who does not qualify as an owner-occupied buyer.

Before the bidding can take place, it is important to note that HUD requires all Phoenix home buyers to be pre-approved for a mortgage (unless you plan on paying cash for the property). Pre-approval is the the conditional approval given by a mortgage lender after a formal loan application has been taken and the lender has verified the information provided (such as employment, income, credit, etc.).

If the Phoenix home buyer is a cash buyer, the buyer needs to provide sufficient evidence needs to show that the he or she has enough cash to purchase the home. Sufficient evidence that the buyer should provide includes a bank statement, deposit slip, or a letter signed by a banker.

Qualify to buy a HUD Home in Phoenix, AZ

Any qualified buyer can make an offer on a HUD home through the services of a registered HUD real estate broker. A qualified buyer is one who has the means and the ability to purchase a HUD home. As stated before, this would be a buyer (whether it is a first time home buyer, teacher, police officer, investor, or non-profit organization) that is pre-approved for a mortgage (or has the verifiable amount of cash to purchase the home), has the required earnest money (see below), has the ability to close the transaction within 30 to 60 days, and is utilizing the services of a HUD registered real estate broker (click here to find a HUD registered real estate broker).

The process of buying or offering on a HUD home differs from a typical residential real estate transaction. In residential real estate, the buyer finds the home he or she likes and the agent presents an offer to the seller. The seller may counter the offer and this process continues until 1) the buyer and the seller find mutually agreeable terms to close the deal or 2) the buyer or the seller rejects the terms and both move on with their lives.

There are no negotiations between buyer and seller when buy a HUD home. HUD homes are sold by a sealed bidding process where the highest netting bid (i.e. after all costs are paid, the net amount that HUD will receive for the home) wins the sale.

There is no haggling about price because everything is spelled out in black and white when making an offer. If the offer is the highest grossing offer for HUD, they generally accept it.

What's more, HUD responds promptly to the offer, and if it is accepted, closing on the home will usually occur within 30 to 60 days. 

How to Make an Offer on a Phoenix, AZ HUD Home

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.

Phoenix, AZ HUD Homes

Before any offer is submitted to HUD, the buyer is required to deposit with the HUD registered real estate broker an earnest money deposit. An earnest money deposit is money presented with an offer on a home that shows that the buyer is serious about purchasing a home.  

HUD only allows the earnest money to be either 1) a cashiers check or 2) a money order. If the purchase price is $50,000 or less, the buyer is required to deposit $500. If the purchase price is greater than $50,000, the required deposit is $1,000. If a buyer's offer is rejected, the earnest money is returned in full to the buyer. 
Should a buyer have an accepted bid and not be able to buy the home, HUD will return the buyer’s earnest money deposit on the following conditions:

For an owner-occupied buyer: The entire deposit will be returned if it is requested in writing and adequate documentation is included when 1) there has been a death in the immediate family, 2) there has been a recent serious illness in the immediate family that has resulted in substantial medical expenses, income loss or adversely affecting the buyers ability to purchase the home, 3) there has been a loss of work by the primary wage earner or substantial loss of income at no fault of the buyer or 4) there is good cause as determined by HUD. On an uninsured sale, the buyer forfeits 50% of the deposit if the purchaser is unable to obtain a mortgage, despite good faith efforts from the buyer.

However, the buyer forfeits 100% of the deposit in those instances when no documentation is submitted, documentation fails to provide acceptable cause for the buyer’s failure to close or where documentation is not provided within a reasonable time following contract cancellation.

For an investor: The entire deposit is forfeited, regardless of reason unless the home is an insurable property and the purchaser is determined by HUD to be an unacceptable buyer (in which case the investor loses 50% of the earnest deposit).
Before deciding on which home to bid on, it is important for a buyer to sit down with his or her qualified real estate broker and discuss a strategy to buy a HUD home. For example, HUD may pay up to 3% of the bid price towards the buyer’s closing costs (in Arizona). However, this may affect your net bid amount (as discussed above).

All sales must close within 45 days. Closings later than 45 days require an approved extension and may (most likely) will incur a fee. Extensions may be granted at the sole discretion of HUD or its authorized agent.

A buyer may not make any repairs to the property prior to the close of escrow. Furthermore, the purchaser is not authorized to move any of his or her personal effects into the home prior to the close of escrow.

HUD Homes in Phoenix, AZ

HUD homes can be a great investment for potential home owners and real estate investors. Often times, the properties can be purchased at a significantly reduced market value.

As a potential HUD home buyer, remember the following:

• You must use the services of a HUD registered real estate broker

• You must be pre-approved for a mortgage or show evidence of adequate cash reserves to purchase the home

• Owner-occupied bidders receive the first priority to purchase HUD homes

• HUD offers three types of properties: FHA insurable homes, FHA insurable homes with a repair escrow and homes hat are not insurable with an FHA loan.

• You do not have to finance a HUD home with an FHA loan

• HUD homes are sold "as-is"

• Before making a bid on a HUD home, you must provide your HUD registered real estate broker with the appropriate earnest money in the form of a cashiers check or money order.  

• If the purchase price is $50,000 or less, the amount of the earnest money required is $500. If the purchase price is greater than $50,000, the amount is $1,000.

• Your earnest money check should be made payable to the escrow account of your HUD registered real estate broker.