You’ve likely heard of HUD before, but how much do you know about it? If you’re in the process of buying a house, learning more about this government agency may benefit you during your search.
HUD provides many opportunities for home buyers. And knowing what those opportunities are and how they work may save you tens of thousands of dollars. Read on to learn more about HUD and the homes they offer to determine whether purchasing one is right for you.
What Is HUD?
HUD is an acronym for the Department of Housing and Urban Development, a government agency established in 1965 by President Lyndon B. Johnson as part of a nationwide effort to combat poverty. Through its federal policies and programs, HUD works to ensure all individuals in urban areas have access to quality housing that is safe and affordable.
HUD oversees the Federal Housing Administration (FHA), which helps home buyers who don’t qualify for conventional loans obtain affordable mortgages. The FHA’s mortgage insurance program gives home buyers with lower incomes or past credit issues the ability to qualify for FHA loans, which are secured by the government.
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What Is A Hud Home And Who Qualifies?
HUD homes are foreclosed homes originally purchased with FHA loans. Residential properties become HUD homes when homeowners can’t keep up with their monthly mortgage payments and default on their loans, resulting in a foreclosure. The FHA steps in, pays the remaining mortgage balance to the lender and seizes the homeowner’s property.
To recoup their costs, the government sells the foreclosed properties, often slightly below market value, to encourage home buyers to purchase them. Although HUD homes are appraised to determine value and then priced accordingly, they are sold as is. That means no repairs or improvements are made to the home before its sale.
Which Home Buyers Qualify For A HUD Home?
Any home buyer with the funds or who can qualify for a mortgage loan is eligible to purchase a HUD home. While real estate investors may purchase these properties, HUD homes are first offered to owner-occupant buyers. These buyers plan on making these homes their primary residence. However, a buyer may not have purchased another HUD home in the last 2 years and must live in the new home for at least 1 year.
HUD Assistance And Home Buyer Programs
As part of the home buying process, many people interested in purchasing property may be on the lookout for first-time home buyer programs or other forms of assistance for their real estate expenses. To further motivate buyers to purchase HUD homes, the agency offers housing assistance programs as incentives. Some grants, vouchers and buyers programs HUD offers include:
- Housing Choice Voucher Program (Section 8): This program helps low-income families afford homeownership by issuing housing vouchers that help them make their monthly mortgage payments.
- One Dollar Program: This program allows low- to moderate-income families to purchase HUD homes that have been on the market for over 6 months for only $1.
- Good Neighbor Next Door Program: The program helps public servants, like teachers, police officers, firefighters and emergency medical technicians, afford homeownership by taking 50% off the purchasing price of homes in revitalization areas.
- HUD-approved nonprofits: Community and religious nonprofits can buy HUD homes for up to 30% off to rehab and resell them to low- to moderate-income families.
- HUD $100 Down Payment Program: The program helps make homeownership possible for owner-occupant buyers by waiving the FHA’s5% down payment requirement and allowing buyers to make a $100 down payment on a HUD property.
Buying A HUD Home: What To Expect
Buying a HUD home differs in many ways from buying a home on the open market. If you’re considering purchasing a home through HUD, consider these key factors:
Where To Find HUD Homes
If you’re interested in purchasing a HUD home, you should understand the process and be aware of the differences from buying a traditional home. Here are a few key differences to expect when buying a HUD home:
- HUD homes aren’t listed on the multiple listing service (MLS). You won’t find HUD homes among standard home listings. HUD lists its properties on its website, gov.
- HUD homes are sold at auction. You must hire a HUD-approved real estate agent to view and bid on these homes.
- Bids from owner-occupant buyers are accepted for 30 days. After the 30-day bidding period, HUD reviews all bids and selects the highest offer. If none of the offers are high enough, the bidding process is extended and opened to
If you have the winning bid, HUD will inform you through your agent and provide a settlement date. You typically have 30 – 60 days to close.
HUD Home Financing
Financing a HUD home isn’t so different from financing any other property since all financing options are available to home buyers. Here are your options for financing a HUD home:
- A conventional loan secured by Fannie Mae or Freddie Mac
- A Department of Veterans Affairs (VA) loan
- An FHA loan
- An FHA 203(k) loan
FHA 203(k) loans give borrowers enough money to finance the purchase of a home and repair it. Given that many of these homes must be renovated to make them inhabitable, this loan may be a beneficial financing option.
Because HUD homes are sold a -is and are in varying stages of disrepair, it’s critical to order a home inspection before making an offer. Although it’s not required, a home inspection can help you estimate how much you’ll need to spend to make the home livable and whether the cost is worth purchasing the home.
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The Benefits Of Buying A HUD Home
There are many benefits to purchasing a HUD Home. Here are a few upsides to consider:
- Lower pricing: Because HUD homes have gone into foreclosure, HUD is eager to recoup its costs quickly. As a result, HUD homes tend to be priced slightly below market value.
- Priority over investors: Buyers who want to make a HUD home their primary residence get a 30-day window to bid on a property before the auction opens to investors.
- Closing cost assistance: HUD may pay for closing costs up to 3% of a home’s purchase price.
- Low down payment: HUD enables buyers to make lower down payments and offers down payment incentives like the HUD $100 Down Payment Program.
The Drawbacks Of Buying A HUD Home
There are some downsides to getting a house through HUD. Here are a few to consider before purchasing a HUD home:
- Must use a HUD-approved agent: To view and bid on HUD homes, you must enlist the help of a real estate agent registered with HUD.
- Home sold as-is: There is no negotiating with No matter a home’s condition, the agency won’t initiate repairs or renovations.
- Restrictions on selling: Owner-occupant buyers must live in the home for at least 1 year and may not purchase another HUD home for at least 2 years.
HUD Home FAQs
Can you offer less on a HUD home?
The short answer is: It depends. When HUD homes are auctioned online, the property goes to the highest bidder, so a lower bid may not work in your favor. However, it may be less risky if you put in a lower offer on a home that has been on the market for over 3 months.
Can I buy a home for investment purposes?
Yes, you can buy a HUD home as an investment property, but owner-occupant buyers get prioritized over investors, so you’ll need to wait your turn before you can place a bid.
What does it mean when a home is a HUD home?
A HUD home is a home that was purchased with an FHA loan, then the homeowner defaulted on the loan, and the FHA foreclosed on the property. The homes are up for sale at auctions and other venues, and buyers interested in primary residences can bid on them. Home buyers get prioritized over real estate investors, and the homes are often sold slightly under market value.
Who qualifies to buy a HUD home?
As long as you can secure financing for a HUD home, you’re eligible to bid on one. Preference is given to buyers who intend to live in the home as their primary residence. However, real estate investors can bid on a HUD home at the end of the 30-day exclusive listing period.
The Bottom Line
If you’ve been priced out of homes and the market feels too competitive, a HUD home may be an option. You’ll need to do your due diligence and check out the property. HUD homes may be more affordable, but they aren’t always worth their purchase price. It’s critical to order a home inspection before you make an offer so you know what you’re getting into.
You have many options to choose from to finance your next home. Learn which financing option may be the right fit for your new HUD home.
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Victoria Araj
Victoria Araj is a Staff Writer for Rocket Companies who has held roles in mortgage banking, public relations and more in her 15-plus years of experience. She has a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.
