How to Buy a HUD Home for $1: What to Know

The U.S. Department of Housing and Urban Development (HUD) acquires properties when homeowners with Federal Housing Administration (FHA)-insured loans default on their mortgages, leading to foreclosure. These properties, known as HUD homes, are then offered for sale to recover the financial loss incurred by the FHA. While the idea of purchasing a HUD home for $1 often circulates, actual “dollar homes” are part of highly specific, limited programs aimed at community revitalization and are generally not available for direct purchase by individuals. This article will clarify the nature of these special programs and then detail how individuals can purchase other HUD homes, which are usually sold at market value.

The Dollar Home Program

The concept of a “$1 home” primarily refers to programs like the Dollar Home Sales Program, which is not designed for individual buyers. Instead, this program allows local governments to purchase eligible HUD-owned properties for $1, plus closing costs. These are single-family homes with an “as-is” market value of $25,000 or less that HUD has been unable to sell. The objective is to support local municipalities in their efforts to create affordable housing options and address specific community needs.

Another program offering significant discounts is the Good Neighbor Next Door (GNND) program, which provides a 50% discount on a home’s listing price. This program targets specific public service professionals, including full-time teachers (Pre-K through 12), law enforcement officers, firefighters, and emergency medical technicians (EMTs). To qualify, the property must be located in a HUD-designated revitalization area, and the buyer must commit to occupying the home as their primary residence for at least three years. The GNND program aims to encourage essential workers to live in the communities they serve, fostering community renewal.

Acquiring a Dollar Home

For local governments interested in the Dollar Home Sales Program, eligible properties are made available, and they have a short window to submit a sales agreement for the $1 purchase price plus closing costs. The property must be within the government’s jurisdiction and intended for a “clear public purpose,” such as providing affordable housing. Local governments can then partner with non-profit organizations or utilize existing programs to repair and resell these homes to low- to moderate-income residents. This process focuses on community development rather than direct individual transactions.

Individuals eligible for the Good Neighbor Next Door program can find available properties listed on the HUD Home Store website. If multiple eligible buyers express interest in a specific property, a random drawing is conducted to select the buyer. Successful applicants must sign a second mortgage with HUD, which is forgiven after the three-year occupancy requirement is met.

How Individuals Can Purchase HUD Homes

For the general public, purchasing a HUD home means buying it at market value. The first step involves finding available HUD properties, which are listed on the official HUDHomestore.gov website. Anyone can purchase a HUD home provided they can secure financing, whether through personal funds or a mortgage. However, owner-occupant buyers, those who intend to live in the home as their primary residence, receive priority during an initial bidding period.

A requirement for individual buyers is to work with a real estate agent who is registered with HUD. This agent acts on the buyer’s behalf to submit offers and navigate the specific HUD purchasing process. Financing options for HUD homes are diverse and include conventional mortgages, which may require at least 3% down, and FHA loans, which can have down payments as low as 3.5% and more lenient credit requirements. Additionally, FHA 203(k) loans allow buyers to finance both the home’s purchase price and the cost of necessary repairs, as HUD homes are sold in “as-is” condition.

Preparing an offer for a HUD home involves several considerations. Buyers will need to provide an earnest money deposit to demonstrate serious intent to purchase. For homes priced at $50,000 or less, a deposit of $500 is required, while homes over $50,000 require a deposit between $500 and $2,000. The earnest money is paid to the buyer’s chosen title company. Buyers are encouraged to conduct a thorough home inspection before submitting an offer, as the “as-is” sale condition means the buyer assumes responsibility for any repairs needed after closing.

The HUD Home Offer and Closing Process

Once a HUD home is identified and the buyer is prepared, the offer submission is handled electronically through the HUDHomestore website by the HUD-registered real estate agent. Offers are submitted during a specific bidding period, and for owner-occupants, bids received are considered simultaneously. HUD reviews offers to determine the highest net offer, aiming to recover losses from the foreclosure.

If an offer is accepted, the buyer’s agent is notified, and a correct sales contract along with other required forms must be submitted within a short timeframe. This contract signing initiates the due diligence phase. Buyers should arrange for inspections and an appraisal to understand the property’s condition and market value. An FHA 203(k) loan can be used to finance repairs identified during this period.

The final steps involve securing financing, conducting a title search, and ultimately transferring ownership at closing. HUD may pay certain seller costs, such as outstanding taxes or utility bills related to HUD’s ownership, and can contribute up to 3% of the purchase price towards closing costs. The closing process for a HUD home requires strict adherence to timelines, as HUD will not change deadlines. If the buyer fails to close, the earnest money deposit may be forfeited.