The U.S. Department of Housing and Urban development, commonly known as HUD, sometimes acts as a mortgage lender as well as a government entity. Many first time home buyers use FHA-insured loans, which essentially means the government lent them the money to buy a home. It also means that the government gets the house if the homeowner defaults on the FHA loan.

Buying a HUD home, a property foreclosed by the a government, offers great savings for savvy buyers. HUD homes are first made available to buyers planning on using them for a primary residence, after that the sale is open to other investors. In some areas, HUD offers homes at a special discount for buyers who are teachers, firefighters and police officers, among others.

Buying a HUD foreclosure requires using a real estate agent registered with HUD, who will be paid the real estate commission by HUD if there is one stipulated in the contract. HUD foreclosures are listed on the Internet and managed by companies that have a contract with HUD. Many websites have nationwide listings by city, state and zip code. Online sites specializing in HUD foreclosures offer advice and tips on navigating a HUD sale.

While HUD foreclosures offer significant savings to home buyers and investors, there are some caveats. To begin with, HUD homes are sold as is. HUD strongly suggests buyers get a home inspection, but the department is not responsible for any repairs. Also, HUD does not offer direct financing. Some buyers may qualify for FHA loans, but all financing needs to be obtained by the buyer and secured before contracts are signed.

Even though it is called a HUD auction, it does not work like a public foreclosure auction. Most of the properties are listed with a real estate company that has a contract with HUD. These real estate companies acquire the properties through an electronic bidding process. This means the greater discount the agent gets on the house, the better deal you are likely to get, too. You should do your research about what the fair market value is the area you are interested in buying. This will allow you to determine if a HUD foreclosure is a good investment for you or not.