This is one government agency you want to know about, especially if you’re looking to buy a home. HUD creates opportunities for homebuyers to purchase while saving tens of thousands of dollars. Here’s some information about HUD and the deals available to you.
What is HUD?
HUD is an acronym for the U.S. Department of Housing and Urban Development. It’s the government agency tasked with combating poverty by giving people access to decent housing that is affordable and inclusive. The department was first established in 1965 as a broader initiative against poverty in the U.S.
HUD is led by a secretary who is a presidential appointment and must be approved by the Senate. The HUD secretary oversees the Federal Housing Administration (FHA), leads community development programs, provides rental assistance for people in need.
HUD uses the FHA to provide mortgages for people who wouldn’t usually qualify. A mortgage insurance program by the FHA gives people on low-income or with bad credit the opportunity to buy homes. The program is secured by the government.
Related: What Are The Different Types of Mortgages
What are HUD homes
A property becomes a HUD home when the owners cannot pay the monthly mortgage, and the home goes into foreclosure. These homes were first purchased with FHA loans. So when the owners default on the loan, the FHA pays the lender the remaining mortgage and seizes the property.
To recoup that money, the government sells the property – usually below the market value. The lower sell price is meant to encourage a re-purchase quickly. HUD homes are appraised to establish value, but they are sold “as is.” This means that no prior repairs or improvements are made. So do your due diligence when picking out your home.
Anyone who qualifies for a loan can then purchase a HUD home. This does mean that investors may buy these homes, but they are first made available to ower-occupant buyers (people who will live in the home). The only stipulation is that buyers must not have purchased a HUD home in the last two years and have to live in the new purchase for at least a year.
HUD assistance and Buyers Program
To incentify HUD home purchases, the agency offers grants, vouchers, and a buyers program:
- One Dollar Program: If a property is on the market for over six months, a qualifying low or moderate-income family can purchase it for only $1.
- Housing Choice Voucher Program (Section 8): A recurring monthly subsidy helps low-income families to make their monthly mortgage payments.
- Non-Profit Program: This program allows religious and community not-for-profit organizations to purchase HUD homes for a 30% price reduction. They can then repair and improve them for re-sale to first-time homeowners or people in financial difficulty.
- Good Neighbor Next Door Program: The program makes it possible for teachers, firefighters, police officers, EMTs, and other public servants to afford homes by giving them 50% off the cost of homes in revitalization areas.
- HUD $100 Down Program: People who intend on living in the purchased home (owner-occupant) can forego the 3.5% requirement for a downpayment and instead make a down payment of just $100.
Related: Buying a Foreclosed House
Buying a HUD home
The process of buying a HUD home looks a little different than a traditional home purchase. HUD homes are not listed with other homes on the Multiple Listing Service. You’ll have to go to the HUD website.
The homes are sold at auction. You have to hire a HUD-approved real estate agent who can help you view the property and bid on it. Bidding is open for 30 days, while bids from owner-occupant buyers are accepted. At the end of the 30 days, bids are reviewed, and the highest offer is accepted. If no offer is high enough, the bidding is extended and opened to investors.
If your bid is accepted, HUD will inform you and give you a settlement date. You’re usually given about 30 to 60 days to close.
If you’re in the Orange County area and looking for a mortgage, we provide mortgage brokerage services. Contact Mares Mortgage today.
HUD Financing
Buying a HUD home isn’t that different from a regular home purchase. All buyers can proceed using loans secured by Fannie Mae or Freddie Mac or choose something else. Qualified veterans and current service members (and their spouses) can buy a HUD home with a VA loan or a family on low-income or with bad credit can use an FHA loan.
Buyers can choose to buy using an FHA 203(k) loan. In addition to the cost of the home, this loan will also cover the cost of repairs. This is especially useful because some of the homes are in need of extensive repairs.
Advantages of a HUD home
Here are some of the advantages of purchasing a HUD home:
- Lower price: Since the homes have gone into foreclosure, they are priced for quick re-sale.
- Lower down payment: Buyers are allowed to make lower down payments than in the open market. They even have down payment incentives, like the HUD $100 Down Program.
- Prioritize owner-occupant over investors: Buyers tend to be looking for a primary residence of their own, and they have a 30-day window to bid before investors are allowed in.
- Assistance with closing costs: HUD will help with up to 5% of the purchase price to help with closing costs.
Related: How to Get a Home Improvement Loan
Disadvantages of a HUD home
Here are some of the disadvantages of purchasing a HUD home:
- The home is sold “as is”: This can problematic as sometimes a home may have extensive damage. The buyer has to have the money to repair it after they’ve purchased it.
- Buyers must use a HUD-Approved agent for the purchase: A capable buyer is still not allowed to do the process themselves.
- There are restrictions on selling the property later. The buyer must live in it for at least a year, and they can’t buy another HUD home for two years.
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Last word
For anyone who is having challenges purchasing a home, a HUD home may be just the deal for you. But as with any big purchase, make sure you go in with your eyes wide open. There are many incentives to encourage you to purchase, but do home inspections and consider the long-term cost of your purchase.