Before any offer is submitted to HUD, the
buyer is required to deposit with the HUD registered real
estate broker an earnest money deposit. An earnest money
deposit is money presented with an offer on a home that shows
that the buyer is serious about purchasing a home.
HUD only allows the earnest money to be
either 1) a cashier’s check or 2) a money order. If the
purchase price is $50,000 or less, the buyer is required to
deposit $500. If the purchase price is greater than
$50,000, the required deposit is $1,000. If a buyer's
offer is rejected, the earnest money is returned in full to
the buyer.
Should a buyer have an accepted bid and not
be able to buy the home, HUD will return the buyer’s earnest
money deposit on the following conditions:
For an owner-occupied buyer:
The entire deposit will be returned if it is requested in
writing and adequate documentation is included when
1) There has been a death in the
immediate family,
2) There has been a recent serious
illness in the immediate family that has resulted in
substantial medical expenses, income loss or adversely
affecting the buyers ability to purchase the home,
3) There has been a loss of work by
the primary wage earner or substantial loss of income
at no fault of the buyer or
4) There is good cause as
determined by HUD. On an uninsured sale, the buyer
forfeits 50% of the deposit if the purchaser is unable
to obtain a mortgage, despite good faith efforts from
the buyer.
However, the buyer forfeits 100% of the
deposit in those instances when no documentation is submitted,
documentation fails to provide acceptable cause for the
buyer’s failure to close or where documentation is not
provided within a reasonable time following contract
cancellation. This is why it is extremely important for a
buyer to be pre-approved. HUD will not return the deposit if
the buyer does not qualify for their loan except as noted
above.
For an investor: The entire
deposit is forfeited, regardless of reason unless the home
is an insurable property and the purchaser is determined
by HUD to be an unacceptable buyer (in which case the
investor loses 50% of the earnest deposit).
Before deciding on which home to bid on, it
is important for a buyer to sit down with his or her qualified
real estate broker and discuss a strategy to buy a HUD home.
HUD may pay for the buyers closing cost or down payment
assistance programs but, this may affect your net bid amount
to HUD. Remember, the will only look at the highest acceptable
net to HUD.
Income
Guidelines
Overcoming
Credit Problems
Where
to get down payment money