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Buying HUD Owned Homes

What is a HUD Property? HUD image

Are you interested in HUD property but aren’t quite ready to purchase?



Maybe you want some assistance and information about the following:

• Personally viewing HUD properties

• Submitting a bid on a home or preparing to purchase a home

• Understanding how the buying process works

Allow me to clarify some things first.

People think that buying a HUD home is as simple as finding one they like online and buying it…Not true. People also think that HUD forecloses on properties thus resulting in HUD foreclosures…Not true.

First of all you should know that HUD does not foreclose on homes.

There are no HUD foreclosures despite the advertisements you see floating around.

There are HUD owned properties. Sorry to be the bearer of bad news.

Truth; a home becomes a HUD Home because someone that had a FHA Insured loan, defaulted on the loan from their lender (not HUD) and was foreclosed by their lender, not HUD. The lender in turn collects from FHA (Federal Housing Administration) any losses they incurred from foreclosing.

FHA is part of HUD. But FHA only insures mortgages. They are not a lender. HUD in turn eventually gets the deed to the property and offers it for sale to the general public after much red tape is gone through, typically taking from 8 to 12 months.

A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.

Understanding HUD owned properties

If the house you are interested in is a HUD owned property, it was last purchased with a Federal Housing Administration (FHA) insured mortgage. The Federal Government insured the loan and agreed to repay the lender for all money lost if the property is foreclosed on. This made the previous mortgage possible. The Federal Government protects itself by collecting a mortgage insurance premium at the time of purchase of a FHA insured home. The MIP rate is typically 2.25% of the financed amount and helps the buyer reduce their initial out of pocket expense to as little 3% of the purchase price, making it possible for many more buyers to buy homes. This mortgage insurance premium is combined with the monthly mortgage payment.

Benefits to buying a HUD owned property:

• Instant equity

• Flexible Credit requirements

• Low money down.

• HUD will pay all closing costs. (Up to 5% in some states)

The flip side of the coin

HUD homes have typically been vacant for the length of time it takes them to get the deed which, as previously mentioned, could be as long as 12 months. During this time the property has sat without any utilities being on such as heat and air or water. This is one reason all HUD homes are sold “as is” with no condition warranties at all. That said, should repairs be necessary there is a FHA program available for buyers that will allow for up to $5,000 in repair costs through a program called FHA 203K rehab loan program.

Who Can Buy a HUD Home?

Anyone who has the required cash or can qualify for a loan (subject to certain restrictions) may buy a HUD Home.  HUD Homes are initially offered to owner-occupant purchasers (people who are buying the home as their primary residence). Following the priority period for owner occupants, unsold properties are available to all buyers, including investors.

Two types of properties offered through HUD:


Insured Properties:

HUD’s preliminary inspections and appraisals indicate that there is less than $5,000 in repairs needed for the property to meet HUD’s minimum property standards. This is important because you need to know that the minimum property standards are, in fact very minimum.

Un-insured Properties:

These homes need more than $5,000 in repairs and often need $10,000 to $20,000 or more. This is where the FHA 203k rehab loan comes into play. A good qualified lender, experienced in FHA financing can help you with this.

The interest rates and the amount of loan discount points are usually a little higher than a standard FHA loan, but you can often buy these properties at significant, below market prices if you are willing to put up with the higher fees and the hassle of making the repairs.

As a HUD Certified Selling Agent I can show and sell any property in the state of Tennessee. Contact me today for a FREE list of HUD owned homes for sale!

What About Financing?

HUD does not provide direct financing to buyers of HUD Homes. Buyers must obtain financing through either their own cash reserves or a mortgage lender. If you have the necessary available cash or can qualify for a loan (subject to certain restrictions) you may buy a HUD Home. While HUD does not provide direct financing for the purchase of a HUD Home, it may be possible for you to qualify for an FHA-insured mortgage to finance the purchase.

If you are interested in acquiring a HUD Home that is in need of repair, you may be interested in applying for anFHA 203(k) Rehabilitation Loan. When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. FHA’s 203(k) Rehabilitation Loan is designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property.

Does FHA Offer Any Special Discount Sales Programs?

FHA REO properties located in designated Revitalization Areas are available at a reduced sales price to law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments. Read more about these Good Neighbor Next Door Initiatives.  You can also view maps of REO properties and special programs such as Revitalization Areas with HUD’s Single Family Home Locator.

Should I Get a Home Inspection?

HUD does not warrant the condition of its properties and will not pay for the correction of defects or repairs. Since the new owner will be responsible for making needed repairs, HUD strongly urges every potential homebuyer to get an inspection from a licensed professional home inspector prior to submitting an offer to purchase.

HUD homes are generally listed along with other listings in our local MLS.

You can view their listings on the HUD website at

Remember, you have to work with a HUD certified agent to make an offer on a HUD home.  I am HUD certified so call or text me about any HUD listing you like!  

865-446-4324 Office