The process for HUD Homes is not like normal buyer-seller transactions in that the buyer has his agent place a bid on BidSelect.com. The winning bidder is judged by the net amount to HUD, which is net of any closing costs you ask for and commission. You must be pre-approved by a lender and HUD's preapproval letter has specific requirements that are more stringent than may be acceptable to a normal seller. The lender will look at your credit history before issuing the letter, not HUD. Some banks who are selling their foreclosed properties require you to pre-qualify with them to check your credit, but you can use any bank to get a loan to buy the property.
You may go to BidSelect.com and search for homes yourself. You may NOT bid by yourself. You must have an agent who is registered with HUD (we are). The homes themselves are available for your inspection -- just ask your Realtor to show any homes you're interested in. Do this prior to the bid deadline so you'll know how much you want to bid.
Many HUD Homes need some kind of investment in paint, carpet or other repairs. Most of them are not move-in ready. Some repairs are extensive. Fortunately, many of the HUD Homes do not require extensive repairs, but some do. If the repairs are estimated to be over $5,000 you will need a different type of FHA loan or a loan from a lender that will allow you to complete the repairs after closing. HUD will not allow you to repair things before you actually close, and lenders may not make a loan on a house that cannot be occupied because the repairs are extensive. Yes, FHA has 203(k) and k-streamlines, but you can also get a HomePath Renovation conventional loan.
BidSelect lists the amount of repairs they are estimating and classify the property accordingly. Insurable homes can be moved into after closing, uninsurable homes means that FHA won't lend unless an escrow account is set up to fund repairs after closing (usually you can't move in right away), and insurable with escrow homes have some repairs to do to make the home livable (e.g. A/C is bad).
The highest bidder has a couple of twists for HUD Homes. Homes designated as Good Neighbor Next Door can be purchased by policemen, teachers and the like at 1/2 the listed price. They bid full price but pay half. They count as full-price bidders. Non-profits can also be given preference to buy. So, when you're looking at a listing on their site, make sure it is available for you to buy before you ask your Realtor to show it to you and place a bid.
Your Realtor must be holding an earnest money check when he bids -- $500 for houses priced under $50k, $1000 otherwise. Normally, you get a month to close but you can get extensions fairly easily -- the first extension is usually free. During the time after you win but before you close you can do other inspections, but be warned: you are buying as-is. The inspection may reveal some hidden defect not already on the HUD inspection report. It is possible to bail out if a hidden defect is uncovered or to re-negotiate, but many people considered additional inspections a waste of time and money.
When you first view the property with your Realtor, you should make note of repairs or changes you want to make after closing. If you're not sure of the cost, bring back your contractor before bidding.
Lastly, when you're looking for a good deal -- and most people are -- don't limit yourself to foreclosed properties. Sometimes the move-in ready house around the corner is almost as cheap as HUD's list price. With a little negotiation, you get a better deal than fixing up someone else's leavings. Let your Realtor find you a good deal.