When people owing a house through an FHA mortgage (Federal Housing Administration) defaults on their loan, the agency forecloses on the property and HUD takes control. HUD homes is a program run by the U.S. Department of Housing and Urban Development. These homes are put up for sale in home market by HUD in hopes of making up for financial losses they have incurred.
Homes offered for sale by HUD are both single family and multifamily real estate, up to four units. These properties usually require repairs and renovation works as they are sold in as-is condition by HUD, hence this can be a lucrative option for handy homebuyers and fix and flip investors.
Who can buy HUD-owned properties?
First eligibility for HUD owned properties falls to those people, who intend to live in the house as primary residence and must not have purchased any HUD owned property in the last two years. For investors, legally, they are only eligible to bid for the property, when 30 days has passed since property hit the market.
Good Neighbor Next Door Program
HUD Good Neighbor Next Door Program allow law enforcement officials, firefighters, emergency medical technicians, or teachers to purchase a home in a U.S. Department of Housing and Urban Development (HUD) revitalization area by offering qualified purchasers a 50 percent discount off the list price of homes available from HUD’s inventory. They must agree to live in the home for three years and it must be your sole residence.
How to find HUD homes?
HUD homes are listed on HUD Home Store . Details such as size, age, amenities and more are given for the listed properties. To read more about this program, go to: http://portal.hud.gov/hudportal/HUD?src=/topics/homes_for_sale. Also, you can contact the listing broker directly for more information on a listed property. Information regarding broker is given under the “Agent” tab on HUD listing. You can also contact the Federal Housing Administration (FHA) by following methods:
|Website||The FHA Resource Center|
|Write to||U.S. Department of Housing and Urban Development
Federal Housing Administration
451 Seventh St., SW
Washington, D.C. 20410
|Call||1-800-CALL-FHA (1-800-225-5342) or via Federal Information Relay Service (w/TTY): 1-800-877-8339|
To buy a property kept by HUD, you are going to need a real estate agent and if you have one, make it is HUD approved because legally only registered agents can a represent you. You can find agent by entering your zip code, city, and state into this tool.
After you have selected an agent to represent and found a property that you like, the agent can start the process of bidding on your behalf. An asset manager at HUD will review the bid, which can be accepted, declined, or the asset manager can make a counter offer. You and your agent will be notified through email, in case your bid is accepted. Agents can also check the status of bids on HUD Home Store dashboard available to them. They can go through the sale process with you from beginning to end.
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Financing your HUD Property
· FHA insured Property
HUD homes can come either insured or uninsured. If the home is FHA insured, you’ll need to be able to qualify for FHA financing, which means at least a 3.5% down payment and a 580 credit score or a 10% down payment and a 500 credit score (though individual lenders can set their minimum requirements higher).
· Non FHA insured Property
If the home isn’t FHA insured, it means the home isn’t eligible for an FHA loan due to its condition. In this case, you’d need to find another mortgage product to finance your purchase — possibly a conventional loan, a VA loan, or a USDA loan.
· FHA 203k loan
If a piece of HUD real estate you’re looking at requires lots of repairs, you might consider using an FHA 203k loan to finance it. This allows you to finance both the repairs on a property as well as its purchase price.
If you are looking for a property owned by HUD which requires lots of repairs, you might consider using an FHA 203k loan to finance it. An FHA 203k loan, (sometimes also called a Rehab Loan or FHA Construction loan) allows you to finance both the house itself and repairs required at the house. Since FHA monitors and verifies repairs, hence they are willing to provide loan for the house, it wouldn’t otherwise consider for a loan. Lenders often don’t approve loans for homes in need of major repairs; FHA 203k loan addresses this common problem.
Where to get HUD home loans – Comparing conventional, FHA and VA loans
Financing options for HUD home include conventional, FHA and VA loans.
· Conventional loan
A mortgage that is not backed or insured by the government, including all Federal Housing Administration, Department of Veterans Affairs, etc. is a conventional loan. Interest rates and other terms and conditions of a conventional loan are usually fixed.
· FHA loan
A loan that is insured by the Federal Housing Administration is an FHA loan. Actually, The FHA does not lend money; it just backs qualified lenders in case of mortgage default. There are certain criteria that need to be met by both borrowers and lenders to get FHA approval.
· VA loans
Like with FHA loans, VA loans are insured by the U.S. Department of Veterans Affairs, or VA. The VA does not lend money; it insures qualified lenders. If a borrower defaults on their home loan, then the lender is protected by the VA. The lenders and borrowers must both meet qualifications to be VA eligible.
Your real estate agent can help you determine what programs, i.e. FHA, VA, and additional assistance options you might be eligible for; and your lender may even offer some creative suggestions.
Pros and Cons of an HUD house
It is very likely that you will find at a great in buying an HUD owned property because, HUD, in order to discharge properties faster, often sells them below market value. It is especially good news for investors looking to buy a house at a lower price and sell at a higher price.
One of the downside is that HUD homes can come with serious issues, and they might be hard to finance.
- You’ll probably get a great deal (usually below market value price).
- You won’t face appraisal delays, and you’ll see a faster closing.
- You’ll have some of your closing costs also covered when you buy HUD property.
- HUD owned properties may require some significant repairs.
- Owner occupants have first priority, so investors aren’t eligible for every property.
- Property which is not FHA insured, could be hard to finance.
- Closings can take two months or more.
- Bidding or negotiation can only be done through a HUD approved real estate agent.
Few Tips to Go
Make sure to inspect the property before submitting a bid. It will help in determining the condition of the house, which in turn will help you decide your offer.
It is advisable to dug deep into the available information regarding the house and pull data on its sales history, property taxes, and local comps as well as any disclosures and addendums, which will detail any known damage to the home as well as whether the property was used for drug manufacturing or other purposes.
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