Buying a house can be a challenge when home prices in the US are through the roof, the median home price is around $420K, up 4.8% YoY. Plus, it’s a seller’s market which means inventory is scarce.
However, there are cheaper options such as tiny homes, prefab homes, etc. However, you can go for HUD homes if you are still priced out.
Such homes are foreclosed properties. The governing authorities auction these properties at lower than market rates to recover their losses. You can save thousands of dollars on these properties as a buyer and as an investor as well.
HUD Home Overview
- Preference to Owner-occupants Homebuyers: These buyers get first preference to owner-occupants over investors by allowing them to bid on properties 30 days before they open for bidding for investors.
- HUD Homes are More Affordable: Since HUD homes are foreclosed properties, they are available at cheaper rates than new homes.
- HUD Homes Require Repairs: Most HUD homes repairs. This is largely because s the owner did not have the money to pay the mortgage, it’s most likely that they did not keep the home in livable condition
What Is HUD?
HUD stands for the Department of Housing and Urban Development. Its primary objective is to ensure that the whole urban population has access to quality homes with a safe environment at affordable prices.
HUD oversees the operations of the Federal Housing Association (FHA). With its lenient borrower requirements, the FHA helps homebuyers, ineligible for conventional loans, get affordable mortgages.
What Is a HUD Home?
HUD homes are foreclosed properties originally bought through an FHA loan. When homeowners fail to pay their monthly mortgage payments, their properties are forced into foreclosure.
The FHA pays the remaining mortgage and seizes the property after which it becomes a HUD home. The FHA sells these properties to recover their costs at relatively lower prices. Moreover, they are sold in as-is condition.
Where to Find HUD Homes?
Since HUD homes are in foreclosed state, they are not available for sale on the MLS. Instead, you can purchase them at an auction with the assistance of a real estate agent.
The bidding window lasts for 30 days, after which the HUD reviews all the bids for the highest offer. The bidding process is extended if no offer is high enough. If your offer is accepted, you get between 30 and 60 days to close your purchase.
How Can You Purchase a HUD Home?
Since HUD homes are sold based on bids, they don’t have any income requirements. However, there are important steps you should follow while buying a HUD property.
- Get a Mortgage Pre-approval: A pre-approval letter will help you prove that you’re committed to buying the property and have the means to.
- Find a Suitable Home: You can find homes for sale on HUD’s website. If you find a suitable property, the HUD recommends that you pay for a home inspection before pitching an offer.
- Hire a Real Estate Agent: You need a HUD-approved real estate agent to accept and place bids on your behalf.
- Close on Your Purchase: Finally, once your bid gets accepted, HUD gives you 30 to 60 days to finalize and close your purchase.
Pros of Buying a HUD Home
There are certain advantages to buying a HUD home.
- Since HUD homes are foreclosed homes, they sell for lower than the current market price.
- The HUD prefers primary homebuyers over investors by allowing them to start bidding on the property 30 days before the bidding opens for investors.
- Department of Housing and Urban Development provides closing cost assistance of up to 3% subject to fulfillment of certain conditions.
- The HUD also allows homebuyers to pay lower down payments under its incentive programs like the HUD $100 Down Payment Program.
Cons of Buying a HUD Home
The following are the drawbacks of buying a HUD home.
- Since the previous owner couldn’t keep up with the mortgage payments, it’s most likely that you won’t get the house in a livable condition.
- You’ll have to spend money on hiring a HUD-approved real estate agent as only they can bid on HUD properties on your behalf.
- You, as an owner-occupant, must live in the house for at least a year else you won’t be able to buy a HUD home for another 2 years.
Who Qualifies for a HUD Home?
There’s no such qualification requirement for buying a HUD home, Anyone with sufficient funds can bid on these properties. Most of HUD homebuyers include investors. However, the HUD prefers owner-occupant buyers over investors.
What are HUD’s Incentive Programs?
To encourage people to buy HUD homes, the HUD offers a few incentive programs through which, it becomes easy for homebuyers to buy a home.
- Good Neighbor Next Door: This program primarily aims to help public servants become homeowners. The program waives 50% of the purchase price on homes in revitalization areas.
- One Dollar Program: Through this program, low-to-moderate-income families can get homeownership of HUD homes that have been on the market for more than 6 months for only $1.
- Non-profit Program: This program offers up to 30% discount to HUD-approved Non-profit organizations.
- Housing Choice Voucher Program (Section 8): This program eliminates FHA’s requirement of a 5% downpayment allowing owner-occupants to buy homes with a down payment of $100 on HUD homes.
Bottom Line
A HUD home can be a wise option if you’re looking to get a home without spending as much money on houses listed on the market. You can find properties on HUD’s website and hire a HUD-approved real estate agent to do the bidding for you.
However, it’s less likely to get a home that is in a livable condition so you might have to spend some money on renovations and repairs. Moreover, sometimes the property may not be worth the money so it’s advisable to get a home inspection before moving forward with the purchase.
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Also Read
- FHA Approved Condos: Read to know more.
Frequently Asked Questions
Is buying a HUD home a good investment?
Yes, buying a HUD home can be a good investment. These homes are usually available for lower-than-market value, with some repairs the buyer can sell them for profits or live as an owner-occupant.
How long before an investor can buy a HUD home
The HUD gives the first preference to occupant-owners due to which, the investors have to wait for a period of 30 days before they can place their bids.
Can I get a discount on HUD home?
Yes, you can get a discount on HUD home purchase only if you are eligible for HUD's incentive programs.
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