A HUD home is a property sold by the Department of Housing and Urban Development (HUD). These homes are ones that were originally financed with Federal Housing Administration or FHA-insured mortgages that the owners defaulted on.
Therefore, a HUD home is similar to a foreclosed house that you may find on the traditional real estate market. As with other foreclosed homes, it is important to be aware that all HUD homes are sold “as is.” However, many of these homes are in great condition, and oftentimes those that do not only require minor renovations and repairs.
While HUD homes were originally financed by government loans, you cannot apply for financing from HUD in order to buy one of these properties. Instead, you will need to secure financing on your own either with cash reserves or a mortgage from a private lender or the FHA.
With that in mind, HUD homes are typically sold at prices that are significantly below market value compared to similar houses. Below, learn everything you need to know about buying a HUD home so you can decide whether this type of property is right for you.
Pros and Cons of Buying a HUD Home
Getting a HUD property is beneficial for numerous reasons, so it is worth considering this option if you are in the market for a new home. First, HUD has a wide selection of homes available that you can choose from and properties are available throughout the country in a wide range of neighborhoods. Second, if you are an owner-occupant, meaning that you plan on residing in the property you buy, you receive priority when bidding on HUD homes compared to other interested buyers, such as investors or developers.
Third, HUD homes are significantly cheaper compared to similar homes on the market, so you can get an excellent deal by purchasing one of these properties. There are also several special discount programs you may qualify for when looking at a HUD home, which are discussed in more detail below. If this is your first home purchase, you may even qualify for FHA financing rather than having to go through a private lender or use your own cash reserves.
As with any foreclosed home purchase, it is important to consider the potential drawbacks of getting this type of property. The biggest negative is that some HUD homes will come with damage and will be in need of repairs or renovations. Remember that these properties are sold “as is” and are not backed by any HUD warranties or repair refunds. However, some damage is simply cosmetic and can be fixed inexpensively.
Find Out Where to Look for HUD Homes
HUD properties can be found all throughout the country in both rural and urban areas in a variety of different neighborhoods. The easiest way to look for homes is through HUD’s website, which provides up-to-date listings in the HUD Home Store. The website allows you to use filters when searching in order to find homes that fit your budget and have the features you want, such as the correct number of bedrooms or ideal square footage.
You can also work with a realtor or mortgage lender to get more information about HUD properties. Using a real estate agent is beneficial because he or she can show you around potential homes and help facilitate the purchase wen you are ready to place a bid.
Process of Buying a HUD Home
The first step in buying a HUD home is to find a real estate agent or start locating properties on your own. Next, you will need to place a bid on a home in order for your offer to be considered. If you are selected, you can begin the buying process, which includes having a home inspection, securing financing, going through closing procedures and signing a purchase agreement.
Getting a Home Inspection
It is extremely important to use a licensed home inspector before finalizing any purchase. This is because HUD does not guarantee the condition of any property or compensate you for defects that may exist. Before you hire an inspector, make sure that he or she is licensed and ask about his or her experience. It is also important to figure out how much an inspection will cost before making any agreements.
Inspectors look at various aspects of the home, including its foundation, interior, roof and most major components. Not all inspectors will automatically look for certain types of damage, such as termites. If you have specific areas of concern, make sure your inspector will actually look at these before completing the walk-through.
HUD itself does not finance HUD homes, but you have several different options for financing your home. First, you might qualify for an FHA loan if you are considered a first-time homebuyer and you meet the income, credit score and down payment requirements for FHA financing. Second, you can work with a private mortgage lender such a bank or credit union to secure financing for a HUD home. However, it is crucial that the lender you choose is qualified to facilitate the sale of a HUD property.
Finally, because HUD properties are generally offered at significantly lower prices than homes on the traditional real estate market, you may find that you can afford a house with cash you have on-hand. In such cases, you can easily finance the purchase yourself.
If you meet certain requirements, it is possible to get a discount on the purchase of a HUD home for even greater savings. One of the most popular programs is Good Neighbor Next Door (GNND). Through this program, HUD promotes homeownership among teachers, emergency medical personnel, firefighters and other professions that are considered to have a positive impact on a neighborhood. If you qualify based on your profession, you can save 50 percent on the purchase of a HUD home. In order to maintain eligibility, though, you must commit to living in your HUD home for a minimum of 36 months and the property must be your sole residence.
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