Our Story - How We Bought Our First Home - a HUD House

How We Bought a HUD House

My husband and I were renting in 1998 when we started thinking about buying our first home. Like most folks, we didn’t really have money saved for a down payment, but wanted to be homeowners! We thought being first time home buyers was out of reach for us. I was home from work for a short period of time due to surgery and, since I couldn’t leave the house, had plenty of time to read and do research regarding buying a home.

Back at that time, the average "starter" home price in our area was about $150k to $250k and the interest rates were about 8.5%. With those numbers, we couldn’t have afforded a mortgage, let alone the down payment! We thought, like many first time home buyers, that we were totally priced out of buying home.

The Search

We looked at lots of houses. We started looking in our local newspapers as well as online for homes. We looked at many homes that were a little lower in price than the average price, but many were either in areas we didn’t want to live in, or required far too many repairs. Some were complete pieces of junk! Many of these homes were still out of our price range, so we decided that we needed to find another way to get an affordable home.

After many more hours of searching online, I happened upon a website, Creonline. This website is an excellent resource for all types of homebuyers (including first time home buyers), but the website is primarily geared toward the real estate investor.

In doing more research, we decided we need to find a home well under market value in order to be able to afford a home. I finally found information about buying "distressed" homes – this means buying homes well under market value such as bank owned, foreclosed or other homes that need to be sold at a discount. Many of these homes need repair, although some do not.

We searched many websites and also contacted local real estate offices asking to call us with any "deals" in the area. We gave the local agents some criteria we were looking for – single family home, the area we wanted to live in, etc. We would receive updates (by phone and mail) from the local agents to give us tips on homes for sale in the area.

Nowadays, you can sign up for email updates from your local real estate agent and real estate websites so this is even easier to do. Many websites gear their information toward first time home buyers, which is great for those buying their first home!

A couple of my favorite home search sites are Ziprealty and HomeGain.

On these sites, you can put in whatever criteria you’d like and you will receive daily updates for the homes that match your criteria. The internet helps homebuyers, especially first time home buyers, in an infinite number of ways (many of these ways, I'll share with you later)!

I finally located information online regarding the US Government entity known as the Department of Housing and Urban Development (HUD). Their website, hud.gov, lists HUD houses for sale in each state in the US, many of which are being sold at a significant discount.

We started viewing HUD houses since these homes were more in our price range. When you are dealing with a HUD house, it’s best to read the information and inspection report online and then do a "drive by". Even though you won’t be able to view the inside of the home by driving by, you can learn lots of information to decide if you’d like to take a closer look. You can check out the neighborhood, the yard, exterior of the home, etc. Sometimes, even the neighbors come and talk to you and give you details about the home you’re looking at!

We Found Our First Home!

We finally found the HUD house we wanted to make an offer on. It was a cute bungalow home with some minor repair issues (new kitchen floor, exterior paint, overgrown yard, etc.) and a new septic system was needed. We got an inspection (home and termite) before deciding to make an offer. Remember - a home inspection is very important, especially for first time home buyers! And, for a HUD home, it was in pretty good condition, compared to some houses we visited.

With HUD houses, you need to place a bid on the home. HUD will allow potential homeowners (including first time home buyers / owner occupants) make the first offer on the home. After a designated period of time, real estate investors (non-owner occupants) are allowed to make bids on a HUD house.

When you make an offer, or look at a HUD house, you need to go through designated HUD Real Estate Brokers, not any local Real Estate Agent, or you may place an offer online.

We decided to place an offer - the asking price was $87k and the approximate value was $120k. The HUD Broker advised us to make an offer of approximately 80% of the asking price, so we made an offer of $65k. We knew we needed to make a low offer because we were needed to pay for repairs and a new septic system. HUD counter offered at $67k, and we accepted the offer. We were able to secure financing for the HUD house for about $80k in a HUD-approved 203k loan, which helps homeowners finance repairs of their homes. The additional $13k allowed us to pay for the new septic system and other related repairs for the HUD house.

After the usual headaches of getting the paperwork ready, we closed on the home and received the keys. We were so thrilled to officially be homeowners. The dream of becoming first time home buyers became a reality!

We decided to stay in our apartment an extra month and a half since our first mortgage payment wasn’t due until a month and a half away. This allowed us to do the cosmetic repairs on the HUD house, get the new septic system and allow us to even get the carpets cleaned before we moved into our new home. This made life much easier since it can be quite a challenge repairing a home while you’re living there!

Fast Forward Four Years

We lived in our bungalow home for almost 4 years when we decided to look at a bigger home. Part of the reason was the real estate market was booming and we need make a significant profit when selling our home. This would allow us the necessary down payment money to buy a new home. The good news is that if you live in your primary residence for 2 of the last 5 years, any profit, up to a certain dollar amount, that you make may not subject to capital gains tax. Check out the IRS website for more details.

The real estate market was so hot that we were able to put in a bid on our new colonial home, sell our bungalow home within a month’s time. That was a remarkable feat, since these days, houses in our area are staying on the market for a few months before being sold.

When we were looking for a larger home, we looked at all sorts of homes – new construction, older homes, homes needing repair, etc. Even though we were able to make a profit selling our existing home, we still wanted to get the best deal possible on our new home. Luckily, we found a home that we loved. It was only 2 years old, and for some strange reason, the house had been on the market a couple months, which at the time, was really unheard of.

We think the main problem with the home, although it was new, it was unfinished. None of the walls were painted, many of the rooms were empty and it may not have seemed inviting to some potential buyers (especially first time home buyers).
Note: "Staging" a home to sell can be very important, more details on this topic to follow.

To us, however, it seemed like a perfect home because it was clean slate and we could paint and decorate the house as we wanted. Because the house had been sitting on the market, we made an offer for $10k less than the asking price (it had already been reduced by $20k). The seller made a counter-offer and we were able to purchase the home at a real discount. What was great about it was that we were able to take the majority of the profits of our bungalow home (HUD house) and use that money as a down payment for our new home.

Even though we are no longer first time home buyers, when we buy our next home, we plan to repeat the process all over again! We may even buy another HUD house!

Go from Our Story - HUD House to the Home Page