For Some Buyers, HUD Homes Might be a Bargain
WASHINGTON – If you’re hoping to score a deal while house hunting, an option worth exploring is a HUD home. What exactly is a HUD home? Simply put, a HUD home is a property owned by the U.S. Department of Housing and Urban Development.
Long before a home becomes the property of HUD, it typically was owned by a regular homeowner who purchased the home with an FHA loan. FHA, or the Federal Housing Administration, loans are easier to qualify for than a conventional loan because FHA requires a lower down-payment (as little as 3.5%).
However, if the owner ends up unable to pay the monthly mortgage and they end up in foreclosure on the FHA loan, the home then becomes the property of HUD. HUD must then figure out how to sell the real estate and make back its money.
The process of buying a foreclosed HUD home varies from a conventional sale in a couple of ways, so here’s what you’ll want to know before you venture down the HUD real estate path.
Benefits of a HUD home
HUD doesn’t want to own these foreclosed homes any longer than it needs to, so these homes are usually priced to move, often below market value. In addition, the government agency offers special incentives to buyers in some markets to benefit the home buyers.
For example, the HUD “Good Neighbor” program offers HUD homes in revitalizing areas at a 50% discount to community workers (e.g., teachers, police officers, firefighters, and EMS personnel) who plan to live in the property for at least 36 months.
Other HUD perks: low down-payment requirements or sales allowances you can use to pay closing costs or make repairs on the HUD home. Be sure to inquire with your realtor about the unique home-buying possibilities.
Another bonus for home buyers is that HUD gives preference to owner-occupants who intend to live in the home for at least one year.
How to buy a HUD home
HUD homes aren’t listed on conventional real estate websites, but can instead be found at hudhomestore.com, where you can shop for HUD properties by state or ZIP code. HUD listings typically contain photos, an asking price and property details. There is also a deadline by which you should submit your offer.
HUD homes are sold through an auction process: Once the HUD listing period deadline is past and bids are in, HUD reviews its options. If none of the bids are deemed acceptable, HUD extends the offer period and/or lowers the asking pricing until a match is made.
Risks of HUD homes
HUD homes are sold as is – if the property requires any repairs, it is up to the buyer to assume those costs. However, not every HUD home needs repairs. Each one, once HUD takes it over, is assigned a field service manager, who keeps a watchful eye on the home to make sure it’s secure and provides maintenance while the home is unoccupied.
The HUD field service manager may even oversee cosmetic enhancements or repairs, depending on the home’s condition, before the bidding process begins. Some HUD homes are move-in ready, so you could easily be a lucky HUD buyer.
Where to get HUD home loans
All financing options are available for HUD homes, including FHA, VA and conventional financing. If you’re buying a HUD home that needs repairs, you may want to check into an FHA 203k loan, which can allow you to include the renovation costs in the loan.
Also: In order to represent you in your bid for a HUD home, your Realtor must be HUD-approved. Many are, so ask your Realtor – or you can specifically search for a HUD-registered Realtor at hudhomestore.com.
Source: “What is a HUD Home? A Bargain With One Huge Catch,” realtor.com by Cathie Ericson
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