If you’re looking to purchase a new home you may have come across properties listed by HUD.
HUD homes may be one of the best deals you can get, but what does it mean?
We’re going to explain what a HUD home is and how you can buy one.
What is a HUD home?
HUD stands for the U.S. Department of Housing and Urban Development. A HUD home is a home in which the owner had an FHA-insured mortgage but was unable to make the mortgage payment and went through foreclosure.
FHA loans are insured by the Government. If a borrower defaults on an FHA loan, the Federal Housing Administration pays the lender the balance on the loan and takes possession of the property.
The Government doesn’t want to hold on to these homes too long, so they often sell them below fair market value. Borrowers purchasing as an owner occupant need to wait least one year from closing to sell the home.
Benefits of Buying a HUD Home
Besides getting a good deal on the price of HUD properties, they come with several other great b benefits.
- HUD paid closing costs up to 5% of the purchase amount.
- HUD homes are already apprised by an FHA approved appraiser so you may be able to close faster if using an FHA loan.
- You may be able to get up to 3% of your down payment paid for.
- HUD loan programs available.
- Low earnest money deposits ($500-$1000)
- Preference given to buyer purchasing as a primary residence over real estate investors.
- View all available properties on the hudhomestore website.
HUD Paid Closing Costs
3% of the purchase price towards closing costs may be paid for by HUD. Only certain closing costs are eligible to be paid for by HUD.
Closing Costs HUD may Cover:
- Origination fee
- Home Appraisal Fee
- Flood Certification
- Fee for pulling credit
- Home Inspection
- Recording fee and survey
- Discount Points
- Lender Title insurance
- Owner Title insurance
Special HUD Buyers Programs
One Dollar Program
The one dollar program from HUD is available to local Governments to purchase and offer to low-income families, or as public housing. The dollar program is available for properties up to $25,000 that have been listed for over 180 days. Visit the HUD website for more information.
Good Neighbor Next Door Program
If you’re a police officer, fire fighter, EMS, or a teacher you can buy a HUD home for half price. The good neighbor next door program is for owner-occupied properties only.
HUD offers this program to non-profit faith based organizations, such as churches. This program allows buyers to purchase a HUD-owned home to resell to low-income families and first-time homebuyers.
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How to Bid on a HUD Home
HUD homes aren’t usually listed on most real estate websites. You can view available HUD properties on the hudhomestore website. In order to place a bid you’ll need to have a real estate agent.
HUD properties are sold to the highest bidder, due to competition you may need to offer more than the listing price. Your real estate agent will be able to help guide you on how much to bid.
HUD properties are sold on an as-is basis with warranty. Before bidding it’s highly recommend to get a home inspection to be aware of any issues and needed repairs.
Financing a HUD Home
HUD homes are available to be purchased with cash or by using any type of home loan.
FHA mortgage loans are the most common type of mortgage used to purchase HUD properties. They are great for first-time buyers because of their low credit score and down payment requirements.
If you have a 500 credit score you may qualify with a 10% down payment. With at least a 580 credit score you just need 3.5% down.
One of the greatest benefits offered to veterans are VA loans. A VA mortgage is the cheapest loan you can get.
No down payment is required and mortgage insurance is needed, saving borrowers thousands per year.
A conventional loan is offered by private lenders and is not insured by the Government. Requirements are typically a little more strict and require a higher down payment of 5%-20%.
FHA 203k Loans
If you’re interested in buying a HUD home that is a fixer-upper, a 203k loan provides additional cash to make renovations or repairs.
A 203k loan is a type of FHA loan and has many of the same guidelines. However, the credit score requirement is higher, you need at least a 640 score to qualify for a 203k loan.
Frequently Asked Questions
How do qualify for a HUD home?
Anyone can qualify to purchase a HUD property. You can either pay in cash, or use any type of home loan.
How long do you have to live in a HUD home?
You must wait a minimum of one year before you can sell a HUD home.
What is a HUD owned home?
A HUD owned home is a home that was owned by someone with an FHA loan. When an FHA loan is defaulted on it goes through foreclosure. HUD pays the lender the remaining balance on the loan and takes possession of the home to sell on the hudhomestore website.
How do I bid on a HUD home?
You must have a real estate agent to bid on a HUD home, your realtor will be able to place the bid on your behalf.