RoxanneYou’ve probably heard or seen the term “HUD” before, but if you never knew what it meant, here’s its full name: The Department of Housing and Urban Development.
What does this agency do? It administers programs that make housing more accessible and affordable for low-income families. And while you may know that the HUD’s Section 8 program makes it a lot cheaper to pay the rent, you’ll be happy to know that HUD homes make it a lot cheaper to buy a house.
Affordable HUD Homes
FHA loans come from the Federal Housing Administration. Unlike standard loans, these forms of financing make it easier to get approved since they don’t carry these typical requirements:
- A high credit score.
- A large down payment.
- Expensive closing costs.
Instead, you may get an FHA loan if your credit score is low. Your down payment can be as low as 3.5 percent of the home’s purchase price, which is lower than what you’d usually need. And you may get help with closing costs for even more savings.
What happens if an FHA loan borrower can’t make their payments and ends up defaulting? The HUD steps in. They pay the lender whatever amount is remaining on the loan. Once that’s complete, the HUD owns the home. What’s that home called? You guessed it – a HUD home.
Instead of holding on to the home, the HUD tries to sell it as quickly as possible. They do this by listing the home at a lower price than the market, so people are enticed to buy it.
Buying a HUD Home
If you plan on living on the property for at least a year, you pass the first requirement for owning a HUD home. In other words, if you want to buy it as an investor, you’ll have to wait until people who want to reside in the home get a shot at purchasing it first.
To find a HUD home, visit the HUDHomeStore. It’s the best place to search for HUD homes, as you won’t find them listed publicly as other properties are.
If you find a HUD home you like, you’ll need to hire a HUD-approved real estate agent. Only they will be able to view and bid on the home for you, as these properties are sold separately at auctions.
If you win the auction, you’ll have one to two months to close on the home. You can finance a HUD home with typical loans used to buy any other houses. Conventional loans from Fannie Mae or Freddie Mac are often used, as are VA loans. And if you think your credit score is low or you don’t have a ton of cash available, the aforementioned FHA loan could be your best option.
Here are some additional points worth mentioning about HUD homes:
- Their lower prices may be the perfect fit if you’re worried about the rising costs of real estate.
- You could enjoy an extremely low down payment if you qualify for the HUD $100 Down Program.
- The HUD may pay five percent of the home’s purchase price in closing costs.
- HUD homes are sold as-is, so you may need to spend money on repairs. Inspections are crucial before moving in, as they can tell you any possible additional investment that could be required.
