How to Find the Right Home Through HUD

HUD homes are houses that were once financed with a government-insured mortgage.

The U.S. Department of Housing and Urban Development (HUD) offers these homes for sale at reduced prices, after they have gone through foreclosure. As such, many HUD homes for sale provide homebuyers with many perks and cost-saving options. Learn how to find the right home through the HUD by reading the sections below.

What is a HUD home and who qualifies?

HUD housing refers to homes that were mortgaged through the government. An FHA (Federal Housing Authority) loan is a type of mortgage that is secured by the government. Homeowners can finance a home through the FHA loan, in exchange for a lower down payment; most first-time homebuyers choose FHA loans for this reason.

HUD homes are those that once had an FHA loan, but the owner failed to make their mortgage payments. Since FHA loans are insured by the government, the mortgage lender does not lose out on money when the homebuyer fails to pay. The home then goes into foreclosure, and the government becomes the owner.

HUD homes for sale are typically offered below fair market value. The government pays the lender the remaining balance of the house, and wants to make some of the money back, quickly, by selling the property to a new owner. This is where the incentive of lower housing cost comes into play.

Anyone with cash or an approved loan can fill out an HUD housing application, with the intent to purchase an HUD house. Many people commonly mistake the HUD for a mortgage lender. Homes offered through the HUD are simply homes that were recently foreclosed, and are currently for sale by the government.

Learn About the Benefits of Buying a HUD Home

HUD homes come with many perks and benefits for all types of homebuyers. As mentioned, the listing prices of these houses are usually well below the actual market value. In other words, the house, itself, may be worth thousands more than what the government is asking. This is extremely beneficial for those who are thinking of selling the house in the future.

HUD homes for sale are already appraised, which allows potential buyers to skip out on this lengthy process. The appraisal can add weeks to the closing time. Since HUD housing is already appraised by FHA-approved appraisers, buyers can close more quickly on a house.

Buyers interested in purchasing an HUD home can also receive money for closing costs, in up to 5 percent of the purchase amount. This translates to a whole lot of savings for buyers who are already cutting the cost significantly. Furthermore, buyers can even qualify for a discount of up to 3 percent of the down payment.

HUD housing incentives also include various programs for certain types of homebuyers. The Good Neighbor Next Door program cuts the cost of a house in half for police officers, firefighters, EMS personnel and teachers.

How to Find HUD Homes

Are you wondering how to find HUD homes? Chances are, you’ve been looking in all the wrong places. HUD homes are not usually offered on common real estate websites, like Zillow or Trulia. In fact, to buy a home through the HUD program, you must bid on it through a real estate agent. He or she will place an offer on your behalf.

To find HUD homes, you must navigate to the HUD home store website. The site is run by the Department of Housing and Urban Development, and contains all of the HUD-offered homes across the U.S. You can use the interactive map on the homepage to find your state, or search for a home by inputting details into the search tool.

Using the HUD housing search tool, you can filter the results by several factors. Search in a designated area, and choose your preferred:

  • Price range.
  • Number of bedrooms.
  • Number of bathrooms.
  • Buyer type (if you are buying through a program like Good Neighbor Next Door).
  • Case number (if you already know of a house).

In order to bid on an HUD house of your choice, you must find a broker to do your bidding. You can use the broker search tool on the HUD website to find a broker in your area. Simply enter the state and ZIP code to find a list of approved brokers to help you with your purchase. You can also find a broker on your own, and have him or her navigate to the site, in order to bid for you.

While the listing prices of HUD homes for sale are typically lower than market prices, you likely need to offer more than what the seller is asking. HUD-offered homes are sold to the highest bidder. The bidding starts low, but can often reach close to the market value. The highest bidder is allowed to purchase the house. If the sale does not go through, or the buyer changes his or her mind, the house goes to the next-highest bidder.

One of the benefits of having a real estate agent bid on HUD housing on your behalf is knowing when to stop bidding. The agent is educated in real estate within your state of residence. He or she knows when the bidding is approaching the fair market value. Having a real estate agent bid for you can prevent you from over-bidding, and paying more than the fair market value.

How to Finance HUD Homes

HUD homes may be purchased in many ways. These include:

  • Conventional loans (from private lenders).
  • FHA loans (from the federal government).
  • VA loans (for veterans).
  • 203k loans (for renovations).
  • Cash.

The loan type you choose depends on your situation. Many first-time homebuyers go with an FHA loan for its low down payment requirement. With FHA, you can qualify for a 3.5 percent down payment, if your credit score is 580 or better. If you have a credit score of at least 500, you qualify for a 10 percent down payment.

Many HUD houses need a little bit of renovating. If you plan to purchase a fixer-upper, you may choose to go with a 203k loan. This type of loan is ideal for homes that need some repair, as it provides cash to make renovations. To qualify for a 203k loan, you must have a credit score of at least 640.