If you have ever had trouble securing a conventional mortgage loan, you may have heard of H.U.D. homes as an alternative for those who don’t traditionally qualify for homebuying. In this article, we discuss many questions related to the sale of HUD homes, including:
- What does H.U.D. stand for?
- What is a HUD home?
- Who qualifies for a HUD home?
- How to buy a HUD home?
- Pros of Buying a HUD Home
- Cons of Buying a HUD Home
What does H.U.D. stand for?
H.U.D. is an acronym for the U.S. Department of Housing and Urban Development. This government agency was established in 1965 by Lyndon B. Johnson as part of an effort to combat poverty, by ensuring that all individuals in urban areas have access to affordable housing. This federal department is responsible for overseeing the Federal Housing Administration (FHA) and managing community development and rental assistance.
Through the FHA, the HUD provides affordable mortgage loans to people who don’t qualify for traditional loans. They work with low-income home buyers and those with bad credit.
What is a HUD home?
A HUD home is a foreclosed property that was originally purchased with an FHA loan. When an FHA homebuyer is unable to keep up with their payments, the FHA will pay the remaining mortgage, but seize the property and resell it, often slightly below market price. They do this to encourage other buyers to buy the homes.
The HUD also provides other incentives to encourage the purchase of HUD homes. They offer various grants, vouchers and buyer programs, including:
- Housing Choice Voucher Program
- One Dollar Program
- Good Neighbor Next Door Program
- Non-Profit Program
- HUD $100 Down Program
Despite all of the incentives, buyers should be aware that HUD homes are sold “as is”, meaning there are no repairs made before sale, and they often need to be rehabilitated. HUD homes are appraised before being placed on the HUD market, however, because they often need repairs, they may not be worth their price. Buyers should have the HUD home inspected before making any offers.
Who qualifies for a HUD home?
Any buyer who qualifies for home loans or has the money to buy a home can purchase a HUD home. Investors and private buyers alike are qualified to purchase these homes, but buyers who plan to make these homes their primary residence (owner-occupant buyers) are given preference.
Buyers may not have purchased another home within the last two (2) years and must live in the new HUD home for a minimum of one (1) year.
How to buy a HUD home?
HUD homes will not be found on the same Multiple Listing Services you find traditional homes on. These homes are instead listed on the HUD’s website. Unlike traditional homebuying, these homes are sold by auction. In order to view and bid on these homes, you must hire a real estate agent that has previously been approved by the HUD. For information on other parties you may need to hire to complete your home purchase, specifically in Illinois, visit our article Do I Need An Attorney When Buying or Selling a Home? (oflaherty-law.com).
The first 30 days on the HUD market, home bids are only open for owner-occupant buyers. The highest owner-occupant offer is selected after the 30-day period runs. If you are the lucky winner, you will be given 30-60 days to completely close on the home. If none of the owner-occupant offers are deemed high enough, the bidding will be opened to investors.
Financing the purchase of a HUD home is much like that of a traditional home purchase. HUD homes can be purchased with traditional loans, but can also be secured with financing from alternative sources such as VA loans and FHA loans. FHA 203k loans are also available to secure the purchase price of HUD homes plus costs to repair.
Pros of Buying a HUD Home
While there may be some limitations to purchasing a HUD home, there are several benefits, the first being better pricing. Because HUD homes have gone into foreclosure, the HUD is eager to recoup their costs. Therefore, HUD homes tend to be priced slightly below market value to encourage purchase. For buyers looking to purchase a home to use as their primary residence, HUD is a great option because you get priority over investors. Additionally, HUD is an excellent option financially. HUD not only allows lower down payments than conventional home purchases, they will spend up to 5% of the purchase price towards closing costs.
Cons of Buying a HUD Home
The biggest difference between purchase of a conventional home and a HUD home access to listings. HUD home purchase is more complicated because you must hire an approved real estate agent in order to view and bid on the homes. Additionally, buyers have a greater risk with HUD homes, which are all sold “as is”, regardless of their condition. Lastly, HUD homes require that buyers occupy them for at least one (1) year and limits the purchase of another HUD home for at least two (2) years.
For further information or guidance in the purchase of your HUD home, call our office at (630) 324-6666, or schedule a consultation with one of our experienced real estate attorneys today. You can also fill out our confidential contact form and we will get back to you shortly.
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