Homes with mortgages backed by the Dept. of Housing and Urban Development (HUD). Also refers to these properties that undergo foreclosure because of defaulted payments.
HUD is short for the Department of Housing and Urban Development. This branch of the United States government was founded in 1965 as a way to develop policies regarding housing throughout the United States. There are many different branches within HUD that deal with issues such as fair housing, equal opportunity, the elderly, community planning and lead hazard control, among others.
Although HUD handles many different parts of the United States housing market, one area of particular interest to homebuyers and investors is the ability to purchase HUD homes for sale. HUD homes come about due to a borrower's default on an FHA insured mortgage. A HUD home can be a 1 to 4 unit residential property. The idea behind HUD foreclosures is that the government is able to recover some of their loss under the claim of foreclosure by reselling the properties.
Because the main goal of HUD is to make sure that buyers have a good experience purchasing properties in the United States, they are very clear to educate consumers about how to buy HUD homes. One area that they are particularly focused on is making sure that buyers know how much they can afford.
Before starting to look at homes, HUD recommends that buyers speak with a mortgage lender who can get them prequalified. There are specific formulas that mortgage lenders use in order to qualify a buyer. A lot of that comes from comparing a person's gross monthly income with their total debt. This is often referred to as their debt to income ratio. Each type of loan requires that the debt to income ratio does not go above a certain amount. For instance, FHA says that most people can afford to spend 29% of their gross monthly income on housing expenses alone. They also say that buyers who don't have any other debt may be able to afford as much as 41% of their monthly income for housing.
Don't assume that you know what you qualify for without speaking with the lender, however. They have to take many different factors into consideration including your credit score. Avoid the frustration and discouragement that is associated with looking at homes before you know what you can afford.
When looking for a HUD home, it's recommended that you get help from a professional. In fact, HUD homes are only available through certified HUD listing brokers. You cannot buy a HUD home by going straight to the listing broker, however. You must work with a HUD certified buyer's agent as well. HUD certifies these agents so that they understand the process of purchasing one of these kinds of homes. There is specific paperwork that must be done. The paperwork is not the same state sales contract that a normal real estate professional would be accustomed to. In most states, a HUD certified agent will have a special key to enter the homes, and they will not be on lockboxes much of the time.
HUD recommends that buyers get expert assistance from a real estate professional and a mortgage lender. By knowing your options on lending, you will be able to make a better financial decision.
There are all different kinds of HUD homes available in many different areas. A real estate professional will be able to check out the area you're interested in and see what homes are available. Make sure to pick the right kind of home for you. In other words, think about proximity to local schools, your work and other important locations. Decide whether or not you want a home that is in move-in condition or a fixer-upper.
Make sure that you get a professional home inspection even when buying a HUD home. You can hire a private home inspector who will go over the home with a fine toothed comb looking at all kinds of different issues. HUD encourages all buyers to get a professional home inspection whether they are buying a HUD home or not. It is important to note that HUD homes are sold in "as is" condition. This means that HUD does not do any repairs on the property, so you need to understand how much to deduct from your offer to take care of those things before you place your bid.
When you decide to make an offer on a HUD home, your real estate professional will use specific forms and submit your bid electronically. Typically, HUD will accept the highest bid after deducting all fees. They will pay all real estate commissions to both the listing and selling agent, and that is included as part of the bid. HUD prices their homes by using a real estate appraiser to give them a fair market value at the beginning. However, that doesn't mean that they won't accept less than the listing price. That all depends upon how long the property has been on the market and the current market conditions. Sometimes, buyers will actually bid above the asking price to make sure that they win the bid.
HUD has a very specific bidding process depending upon the type of house. There is an initial listing period where bids can be submitted by all kinds purchasers. Priority is given to owner occupant purchasers for the first 10 calendar days. If none of those are accepted, then HUD moves on to other kinds of buyers and opens up the bidding to everyone. It is required that you give earnest money at the time of making your bid to prove that you are serious about closing. Your real estate broker will hold onto that earnest money and return it to you if your bid isn't accepted.
There are several different financing opportunities available when you're purchasing a HUD home. One popular financing avenue is called 203(b) mortgage insurance. This program gives mortgage insurance to anyone who buys a principal residence. It's funded by a lender, such as your mortgage company or bank, and insured by HUD. In order to be eligible for this program, the borrower must meet the normal FHA qualifications and be eligible for 96.5% financing. The borrower can then finance the upfront mortgage insurance premium, but they will be responsible for paying an annual premium. As with any HUD purchase, only 1 to 4 unit properties are eligible, and there are certain mortgage limits in each area.
Another very popular financing opportunity are the programs that give funds for handyman specials and fixer-uppers. HUD has a program called the 203(k) mortgage insurance that allows a borrower to purchase the property and finance both the repairs and the initial purchase. These are also done through approved mortgage lenders all across the United States. It is only available to people who will owner-occupy the home. The down payment is about 3.5% of the purchase and repair costs of the property.
Finally, there is also financial help for seniors. It is called the Home Equity Conversion Mortgage, and is commonly referred to as a reverse mortgage program. This allows seniors to take some of the money out of the equity in their home to supplement their income from Social Security or pension. It can also help seniors to cover unexpected medical costs, make home improvements or for any other necessity. It's recommended that seniors contact the National Council on Aging to find out more information about reverse mortgages.
It varies, but in general, closing on a HUD foreclosure can take anywhere from 10 days (if paying in cash) to 45 days. Title discrepancies and other issues can delay the closing date. More >>
They can be, but the term 'HUD homes' refers to homes that are repossessed by the government because their owners defaulted on their FHA loans – regardless of who built them.
Anyone can purchase a HUD home if they pay in cash or are eligible for loans. One stipulation is that you will own and occupy the property yourself, at least when the residence is first offered for auction. Real estate brokers interested in buying HUD homes must be certified with HUD, and interested buyers must submit bids through qualified brokers. More >>
A HUD home usually requires a deposit of $500.00 to $2000.00 depending on the cost of the home, which is submitted with the written offer. You then have up to 60 days to complete the buying process.
A conventional loan - one from a private lender, not secured by the government - is one common way to secure a HUD foreclosure. With this method, you do not have to go through the government, but it becomes difficult to obtain help with your down payment, which can be anywhere from 10% to 20% of the purchase amount. This is because HUD does not finance homes. It does pay up to 6% of sales commissions and the selling agent’s commission, though, which can – in some cases – make up for a down payment. Contact your lender for possible options to help with your down payment.
A HUD home is one type of foreclosure that has a mortgage secured by a loan from a federal agency, such as HUD itself or one of the other frequent sources (VA, USDA, FHA, etc.). The only difference is that HUD homes are foreclosures and other repossessed homes that are owned by the federal government, not a private lender as with other foreclosures. HUD homes are also not sold at public county auctions, as with most foreclosures, but rather are sold through a bidding process operated by the agency through HUD-certified real estate brokers.
The specifics of each case may vary, but in general, HUD has the right to sell a home if the owners of the property and the mortgage loan are delinquent on the mortgage payments to a lender and the loan is backed by HUD. In this case, HUD retains ownership of the property through foreclosure and can sell the property to other buyers at auction. If there are allegations of fraud in the case, especially concerning mortgage fraud, the issue should be examined with a qualified real estate attorney who specializes in examining the chain of ownership of a mortgage note.
Yes, it is possible to buy a HUD home with an FHA-backed mortgage. This is one of the more common way people purchase HUD homes because HUD itself does not directly finance a home (it may pay for the selling agent’s commission, as well as up to 6% of sales commissions). Those who meet the standard qualifications for a FHA mortgage can use it to purchase a HUD home at auction. There is also a FHA 203(k) loan available to help qualified buyers finance renovations and repairs to a property purchased with HUD.
The money paid by you to the agency goes to HUD itself as a way to offset the costs of the mortgage guaranteed by the agency. HUD is essentially on the hook for any home loan it guarantees. In the event of a default, the lending institution is paid for the balance on the mortgage loan, which comes from HUD. HUD then sells the home to recoup that loss, similar to a bank when it sells a foreclosed property at auction.
No, at this time there are no public grants from HUD designed to help investors with home improvements. Grants are competitive awards of money to help a designated cause or group of people within the community – typically private or non-profit organizations working with special causes like urban renewal projects. Investors looking for assistance with home improvement projects for a HUD home can instead obtain a HUD-approved FHA 203(k) loan designed to assist with renovating or repairing a HUD home. The 203(k) loan may be used for purchasing and renovating a home, provided it meets certain requirements.
Yes, a buyer can buy a HUD home even with cosigners as long as the financing agency or entity (a private lender, for example) grants approval of a mortgage loan. Since HUD does not directly loan money to borrowers, it does not require that you be the sole signer on your loan – only that you have a valid loan agreement from a lender. Your individual lending company will typically have requirements and qualifications for loans involving co-signers.
Yes, proof of funds is needed in order to bid on a HUD home. HUD requires a letter from your bank certifying that you have the cash funds necessary to cover the purchase, or, an approved loan agreement from your lender saying that you have been approved for the mortgage loan that will pay for the property. This is a way HUD ensures that the property will be paid for in full by the purchaser. The letter from the bank can reference checking accounts, savings accounts, IRAs, or other liquid assets such as stocks and bonds. If you are using a government entity (VA, FHA, etc.) to secure your loan, you will need that documentation as well.