HUD homes are foreclosure properties. They were originally financed with FHA mortgages, which are backed by the US Department of Housing and Urban Development, or HUD.
Because they are government-backed, buying a HUD home is not like¬†bidding for mysteriously-trashed properties on the courthouse steps.
You may be able to get a nice house at a nice discount by purchasing a HUD home.Click to see today's rates (Jan 24th, 2017)
Under the right circumstances, HUD homes can represent great deals. But it's not all roses and rainbows¬†-- there are downsides, too, and potential mistakes to be made.
Even a cheaper home is an expensive purchase, and still requires care.¬†To find out if this is a potential home-buying avenue for you, look at¬†the ins and outs of buying a HUD home.
A HUD home is a property with up to four units, financed with an FHA mortgage. If the borrowers default (fail to repay) their FHA loan, the house is foreclosed and the property must be put up for sale.
Because HUD insures the FHA mortgage that financed the building, HUD becomes the property owner. The agency attempts to recover some of its losses by putting the property up for sale.
HUD uses a regional "management and marketing" contractor to prepare the building for sale and market it. Buyers must use licensed real estate agents to make their offers.
In other words, you'd actually purchase the home from HUD, not an individual seller.
This is not a deal in which you can influence the purchase price by writing a nice letter or finding fault with¬†the house.
You can¬†get a screaming deal on a HUD home if¬†you qualify for HUD's Good Neighbor Next Door program. If you meet its guidelines, you may be eligible for a 50 percent discount on HUD homes located within designated "revitalization" areas.
To apply for the program, you must be a¬†law enforcement officer, teacher, firefighter, emergency medical technician, or meet guidelines for programs established by nonprofits and local governments.
However, if you don't qualify for any special program, don't expect a HUD foreclosure to be deeply discounted.
Understand that "foreclosure" or "short" sale is not some sort of code for "stealing a house." In fact, HUD's own guidelines states that it has a legal obligation to get a fair price for the property to protect its insurance fund (and US taxpayers).Click to see today's rates (Jan 24th, 2017)
What is this "highest acceptable" number? HUD does not say on its Web site. However, a 2015 analysis of 300 sales nationwide found that on average, houses remained on the market fewer than ten days and sold for more than 95 percent of their list prices.
You are, however, allowed to present any offer you wish.
Next, take a look at some of the potential drawbacks ¬†of a HUD home purchase.
You can find HUD home¬†property listings on the HUD Home Store website. Keep in mind that HUD homes are appraised and priced at or near their fair market value. This price is determined by the marketing and management contractor. In some cases, prices are¬†reduced further¬†if an inspection turns up major problems.
You must work with a licensed¬†real estate agent¬†to submit your bid and represent your interests.
Once a property is put on the market, the Initial Listing Period begins. HUD opens the bidding and takes¬†offers on the property. Bids from¬†prospective owner-occupants during the first ten calendar days will be given the highest priority.¬†Investor offers are only considered if no acceptable owner-occupant buyers turn up.
You don't need to buy your HUD home with an FHA mortgage, although it may be easier to qualify under that program.
However, if your HUD home requires major renovations to make it safe and habitable,¬†consider the FHA 203(k)¬†program to cover the purchase plus renovation costs.
According to HUD, escrows complete in 30-to-60 days. It's a good idea to be pre-approved for your home loan¬†before you start bidding, and keep your loan file up-to-date with current¬†paycheck stubs, account statements, etc.
HUD Homes can be a good option for homebuyers, especially first-timers trying to compete with cash investors. ¬†Work with a lender and real estate agent you trust to help you pull off a smart buy.
Today's mortgage rates are higher than they were a few weeks ago, but are probably lower than they will be in 2017, according to many analysts. You can keep your costs down by comparing several offers and getting pre-approved before shopping for a HUD home.Click to see today's rates (Jan 24th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)