How to Qualify to Purchase HUD Repos
In order to buy HUD repos, you need to meet certain qualifications. Preparing in advance can help you be ready when your “dream house” goes up for auction. Here’s what the government requires you to provide before bidding on HUD repos:
1. The ability to pay. When bidding on HUD repos, you must submit either a pre-qualification letter or a pre-approval letter from your lender.
Getting a pre-qualification letter is a simple process. You just call your lender and provide some basic information (your income, your estimated credit score, etc.) The lender will then email or fax you a basic letter. This pre-qualification letter shows that you should be able to qualify for a mortgage, assuming that you provided factual information.
Acquiring a pre-approval letter is more complicated. The lender will verify the information you provide and check your credit score. You must give the lender documentation proving your employment, the source of your down payment, and other financial matters. You don’t have to have a pre-approval letter when bidding on HUD repos; but it can help you feel assured that you will be able to qualify for a loan when the time comes.
2. An earnest money deposit. Before bidding on HUD repos, you must give your agent the required earnest money in the form of a certified check or money order. Generally, the earnest money for a HUD foreclosure is between $500 and $1000.
If your bid is accepted and you do not meet your obligation to purchase the property (i.e. your financing falls through), HUD will not return your earnest money.
3. An application packet. Your real estate agent will help you fill out the HUD repos application packet with information such as your bid amount and some basic personal information. You will be obligated to sign disclosures including standard notices about radon gas, mold, and lead-based paint.
4. Proof of intended owner occupancy. If you want to bid in the first round, you must be an owner-occupant. That means you must willing and able to live in the HUD repo you purchase for at least twelve months. In your application packet, you will find an owner-occupancy agreement; falsely agreeing to these terms could lead to a fine or even jail time.
If you are bidding after the auction is open to investors, you do not need to be an owner-occupant.
Is a Low Income Required to Qualify for HUD Repos?
No. When a borrower defaults on an FHA-insured loan, HUD becomes the new owner. In order to recoup the costs of the foreclosure, HUD repos are auctioned off to the public. Because of their competitive pricing, HUD repos are often affordable to buyers with lower-incomes. However, anyone can bid on a HUD repo – no matter what their income.