HUD: A Path to Home Ownership

Owning a home is part of the American dream, but for many that dream seems out of reach. Worries about credit scores and down payments often discourage people from seriously considering buying a home, but a federal program known as HUD has offered an alternative path to home ownership for over forty years.


You may have heard the term “HUD homes.” Wondering what these HUD homes are all about and how you can qualify? Keep reading!


What Is HUD?


Our guide will help you understand how to qualify for HUD homes and what the assorted benefits of these homes are. First, though, we need to answer a fundamental question: what is HUD?


HUD is an acronym for Housing and Urban Development. The name reflects the name of the Department of Housing and Urban development first established in 1965 by Lyndon B. Johnson.


The original spirit of HUD was to fight against poverty, and the modern HUD homes do this by making home ownership easier for everyone. Even if you do not qualify for a conventional mortgage, you may still be able to buy a HUD home. 


What Are HUD Homes?


Now that you know a bit more about what HUD is, it’s even more important to understand what HUD homes are all about.


These are homes that were originally purchased via FHA loans (more on this later). When the original owners were unable to keep making payments on the homes, the houses went into foreclosure. At this point, FHA pays the remaining mortgage and effectively takes ownership of the property.


Obviously, this is a very costly process for the government. In order to get their money back, they sell these homes as HUD homes, which are usually sold for less than market value. The downside, however, is that homes are typically sold “as is.” 


HUD Purchase Restrictions


There are certain purchasing restrictions when it comes to buying a HUD home (which are always sold via auction). However, these restrictions are intended to protect the integrity of the program and to benefit the homeowners who need this program the most.


The biggest restriction is that buyers must live in the homes they buy for a minimum of two years. If you should violate this restriction, you will receive up to $250,000 in penalties and could even go to jail. That may sound harsh, but it helps keep this program focused on would-be homeowners instead of wealthy investors.


However, investors still get opportunities to purchase these homes. If a home needs less than $5,000 in repairs, it is classified as an FHA-insured property intended only for homeowners. But if it needs more than $5,000 in repairs, it is classified as an FHA-uninsured home, allowing investors to bid on the home that much sooner.


For uninsured homes, would-be homeowners can bid on the house five days before investors can. And for insured homes, would-be homeowners can bid on the house 15 days before investors can.


Remember, you cannot bid on a HUD home on your own. Instead, you must go through a HUD-approved real estate agent. Such an agent can help you navigate the entire process and answer remaining questions you may have.


Different HUD Financing Options


While HUD homes often help those with lower income or poor credit, these homes are not exclusive to these groups. Anyone can bid on and ultimately purchase a HUD home. However, there are a number of financing options that may be beneficial to those with low income and/or poor credit.


If the HUD home is FHA insured, you may be able to buy it with an FHA loan. Such loans allow you to buy a home with only 3.5% down. However, you must have a credit score of at least 580 for an FHA loan, and you’ll have to pay a PMI for the lifetime of the loan.


You may also be interested in an FHA 203(k) loan. This loan helps you buy a home and also finance any repairs it may need, which is beneficial for many HUD properties.


Beyond the FHA loans, there are a number of HUD assistance options. The Housing Choice Voucher Program helps provide subsidies so low-income families can pay a monthly mortgage. And certain low-income families may qualify for the One Dollar Program that allows you to buy HUD homes that have been on the market for at least six months for only one dollar.


Public servants (including teachers, firefighters, police officers, and more) may qualify for a Good Neighbor Next Door program that allows them to buy HUD homes in certain areas for 50% off. The HUD $100 Down Program allows qualifying families to buy a home with only $100 down payment.


The Importance of Inspection


You do not have to legally have a HUD home inspected before you bid on it. However, we highly recommend hiring an inspector before you make any serious moves.


That’s because all HUD homes are sold “as is.” Some of them may be in great condition. Others may have serious issues that you don’t discover until you move in.


An inspector can help you discover any issues well before you make a bid. Furthermore, the inspector can give you a solid idea regarding how much additional money you may need to spend to repair and renovate the home.


Making Home Ownership More Accessible


As we said before, the goal of HUD is to make homeownership more affordable and accessible (especially to those who currently rely on governmental support programs). And HUD offers a number of major benefits that will help you find the home of your dreams.


The biggest benefit is that HUD homes typically sell below market value. If you simply want to save money on a home, this is one of the best ways to do this. Some of the assistance programs discussed here can help you save even more money.


HUD will also pay up to 5% of the purchase price to help you with closing costs, while the potential to buy these homes with a downpayment as low as $100 can reduce much of the stress of buying a home.


What’s Your Next Move?


Buying a HUD home is all about saving money. But what if you could save more money every month?


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