The Mexico international, who has been spotted in Madrid ahead of a medical, has grown increasingly frustrated at a lack of first-team opportunities at Old Trafford and has been linked with several clubs during the transfer window, including Valencia and Juventus.
Real Madrid have been linked with former Atletico Madrid striker Radamel Falcao throughout the summer, but his club, Monaco, are thought to be holding out for a hefty loan fee for their prized asset.
Falcao's compatriot James Rodriguez has already moved to the Santiago Bernabeu this summer but Real appear to have turned their attention to 'Chicharito' to boost their striking options.
Speaking ahead of Villarreal's match against Barcelona, Balague said: "Manchester United and Real Madrid have agreed a one-year loan deal for Chicharito Hernandez to be a player of Real Madrid.
"Some may say that is surprising because they have lost a midfielder in Xabi Alonso, but they also lost (Alvaro) Morata and Ancelotti decided if they were going to get anybody it will be a Number 9.
"That's it, Real Madrid have got another striker."
Hernandez joined Manchester United from FC Guadalajara four years ago and has scored 59 goals in 154 appearances.