A HUD home is a type of foreclosed property that is up for resale. It is a 1- to 4-unit residential property acquired by the U.S. Department of Housing and Urban Development (HUD) as a result of a foreclosure action on an FHA-insured mortgage. When someone uses an FHA loan to purchase their home and fails to repay it, HUD takes the property back after it has gone into foreclosure. They then offer to put the house on the market for resale to cover the loss of the foreclosure claim. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim. HUD homes are more accessible to low-income households and may come with benefits like prepaid closing costs.

To buy a HUD home, one can look at the listings of HUD homes available on the HUD Home Store website. If a home interests the buyer, they will need to contact a HUD-approved real estate broker who can submit a bid for them. Successful bids are posted on the website for the state. When HUD homes are initially listed, they are typically part of an “exclusive” 30-day period mainly reserved for buyers who will live in the home – commonly referred to as owner-occupants. It’s part of an effort to limit these properties from being snapped up by house flippers and other real estate investors. However, if the 30-day window passes without any accepted bids, the home enters an “extended” listing period. Then, anyone – including fix-and-flip investors – can submit a bid.

Some pros of buying a HUD home include that they generally sell below current market value because the buyer pool is always significantly smaller than for standard or traditional listings. Additionally, HUD’s preference for selling to an individual or family who plans to live in the home rather than use it as an investment property can significantly increase the accessibility of this option. However, some cons include that HUD homes come with caveats, and the fact that you’re dealing with a federal entity adds some complications.