HUD Homes

There is a common misconception that a HUD home is only made available to lower income homebuyers.

HUD homes are simply those homes that have been reclaimed by the U.S. department of Housing and Urban Development as the result of a foreclosure. HUD homes are homes where the original owner defaulted on the Federal Housing Administration (FHA) mortgage loan he or she was issued. HUD homes are available for purchase for anyone who can afford to purchase them, similar to other types of home purchases.

You may decide to purchase a HUD home if you are hoping to get a single or multi-family property in your area at a great price. Often HUD homes are sold “at cost” by the public housing authority or governing agent in the area, making them great homes to purchase as an investment property. However, you should know preference is given to those buyers who are purchasing the house as a primary residence. Learn more about HUD homes, how to find them and how to purchase one here.

Determine Your Eligibility for a HUD Home

The first step in acquiring a HUD home is to determine your eligibility. Any individual who can provide the required cash to purchase a HUD home are considered eligible. Additionally, if you qualify for a loan through a mortgage lender you may be considered eligible, although some restrictions may still apply. You will need to speak with a representative from HUD (HUD) to determine whether you will face certain restrictions when attempting to purchase a HUD home with a loan, as this is usually determined on a case by case basis.

You can purchase a HUD home if you intend to occupy the home after you have obtained ownership. HUD homes are typically offered to owner-occupant purchasers first before they are offered to other potential buyers.

If you do not intend to live in a HUD home following your purchase, you may still be eligible to buy the home. If HUD tried to secure an owner-occupant purchaser and failed to do so, the following individuals may buy the HUD home:

  • Investors
  • Registered real estate brokers
  • Non-profit organizations and other organizations
  • State governments
  • Local governments

These individuals are capable of purchasing a HUD home for a client if the allotted period has elapsed for an owner-occupant purchaser to secure the property. Any eligible individual can purchase a one to four-unit residential property listed as a HUD home.

What to Do Before Purchasing a HUD Home

Once you have determined your eligibility and have decided to purchase a HUD home, there are several tips to keep in mind to ensure the process is a smooth one. Before you purchase a home, you should elect to have a home inspection. HUD does not guarantee the condition of the property you are seeking to buy. This means you may encounter unexpected issues or damage to the property after you have already completed the purchasing process. It is best to avoid this scenario as you could end up spending thousands of dollars to repair any possible damage. To ensure you are making the right choice before submitting your offer for a HUD home, you should receive a home inspection from a licensed professional home inspector.

If you have determined there is damage to the property during the inspection period and still wish to submit an offer for the HUD home, you may be able to qualify for an FHA 203 (k) Rehabilitation Loan to complete the repairs. This loan allows the homebuyer to receive the assistance necessary to purchase and repair a HUD home. The FHA Rehabilitation Loan is a long-term loan with an adjustable rate and will cover the cost of interim financing, necessary repairs to the property, and a permanent mortgage.

Financing and Discounts for A HUD Home

For those of you who may need additional assistance to purchase a HUD home, you may want to spend time researching the possible discounts available in your area. While not every HUD home is offered at a discount, there are exceptions under certain circumstances. HUD homes identified as FHA REO properties and are in designated Revitalization Areas may be available for a reduced price. However, a reduce sale price is often only offered to:

  • Teachers
  • Firefighters
  • Law enforcement personnel
  • Nonprofits
  • Local governments
  • Emergency medical technicians

If you are unable to provide the cash necessary to purchase the HUD home you are interested in, you can opt for financing through a qualified lender. HUD does not provide direct financing for individuals seeking to purchase a HUD home. You must obtain your own financing prior to submitting an offer for a HUD home. To accomplish this, you can provide cash from your own personal reserves or you can utilize a loan through a mortgage lender.

When applying for a loan through a mortgage lender you may want to research the possibility of receiving an FHA insured mortgage. To receive an FHA insured mortgage you will need to meet specified requirements. You must meet the FHA standard credit qualifications and you must be able to finance an upfront mortgage insurance premium into your FHA insurance mortgage. Additionally, you must be prepared to pay an annual premium once approved for an FHA insured mortgage. After receiving your mortgage, you are eligible to purchase a one to four-unit HUD home available in your desired area.

Finding Available HUD Homes in Your Area

To find an available HUD home in your area you will need to search through online listings indicating which properties are for sale. An available HUD home will have a sign indicating who the property manager is prior to being listed for sale. You can contact the property manager directly or speak to a representative from HUD to learn more information about a newly listed HUD home.

There are a number of websites out there listing HUD homes for sale. However, unless it is the official HUD government site, you should know there is often someone getting a commission, or worse, someone trying to defraud you with a fraudulent listing. The safest way is to go to the official site where they list the homes for sale, as well as linking to listings of other homes being offered for sale by other federal agencies. They list directions so you can do a drive by, or view the location of the house on a map.

Prior to listing the HUD home for sale, the property will be appraised, and the property manager will work with HUD to determine if the property is eligible for a discount sales program. Additionally, any outstanding issues with the title for the property will also be resolved prior to being listed for sale.

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