HUD Homes Explained

If you are just starting out in the homebuying process, you may not know about HUD homes.

HUD homes are units which fell into foreclosure and are sold through the Department of Housing and Urban Development (HUD). These homes are in relatively good condition and can be purchased for a fraction of the market prices.

If you are trying to find a wonderful home in good condition for less, HUD homes are a great resource. A variety of properties are available across the United States and many of them are in near perfect condition.

A few drawbacks exist when it comes to taking out a HUD home. One is that the homes are sold “As is”, meaning if repairs must be done, you are the one responsible for paying for them. Additionally, financing is commonly an issue as you are not offered a financing option through HUD.

If you look for other lenders, it takes more work to find accredited loan officers willing to assist with this type of housing situation. For more information on what HUD houses are and if a HUD house is right for you, check out the following topics.

What is a HUD Home?

HUD homes were initially homes taken out under a Federal Housing Administration Loan. As the previous homebuyers fell into default on their home, the unit is foreclosed on. After a certain amount of time, the HUD takes over the home and attempts to sell it below market price to recoup some of the money lost.   

HUD homes range from one to four-unit properties and while most are in excellent condition, some have fallen into disrepair.

When you purchase a HUD home, you are purchasing the home without any warranty on it. If you do find a home with damages, the seller is not required to fix it. You are responsible for any and all repairs cropping up during the home buying process.

The HUD market is competitive due to the nice homes and low prices. Homes are put up and nearly sold as quickly as they are listed. If you are looking for a space to make your primary residence, you are given priority over investors and buyers looking for vacation homes.

When you decide on a HUD home, you are responsible for finding the best financing option. HUD does not have financing options and you either pay with personal finances or search out a loan.

Depending on your personal preferences and current financial situation, one option is going to be better for you than the other. Be sure to weigh the options carefully to ensure you are receiving financing through the best possible avenue.

Learn About Hiring a Licensed Professional Home Inspector

Considering the nature of HUD homes being sold as is, hiring a home inspector is highly encouraged. Home inspectors arrive at the property and inspect a myriad of different features from the roof down to the foundation of the unit.

A quality home inspector points out any repairs to be made on the property at some point and estimates the value of the home. By gaining a better understanding of the value and future repair costs, you estimate if purchasing this home is worth the investment.

It is crucial to take note of any repairs the inspector notes so you can adjust the future cost of the home. Depending on the scope of repairs, you may be able to find financing options to help cover the costs.

Learn About HUD Financing Options

You may be hesitant to agree to a HUD house when you have to find your own financing options but fear not. Finance a HUD home you have set your heart on in one of several available ways.

Apply for a loan through a broker or compare multiple mortgage lenders. The only caveat for mortgage brokers is you must have one certified to sell HUD homes. First time homebuyers may have the option for a Federal Housing Administration (FHA) insured mortgage.

This insured mortgage is most often available even if you have lower credit scores, income, and down payments.

Learn About Special Discounts

On top of the low selling prices, HUD offers the Good Neighbor Next Door Program. This program aims to build up communities and the number of homeowners by paying up to 50 percent of a HUD home’s price.

You must fit into a specific category to be eligible for this discount. For example, law enforcement, emergency medical technicians, firefighters, and teachers Pre-K through 12th grade are all eligible. Additional requirements state you must use the HUD home as your primary residence for three years.

Where to Learn More About HUD Properties in Your Area

Before you decide to look at HUD homes, determine if it is the best option. The price aside, HUD homes do have some great benefits. Find a wide selection of properties in many areas so you are not constrained to one area just because of the home selection.

Additionally, if you are looking for a primary residence, you are provided priority over others. In a competitive house market, the priority designation makes all the difference.  Financing make take a bit of work, but you find options to take care of it and special offers are only available for HUD housing.

HUD homes do have a lot of benefits, but you cannot ignore the drawbacks. Considering homes are sold “as is”, you pay for what you see.  You cannot haggle with the HUD to fix repairs; those are the sole responsibility of the buyer.

This is why you should always have a home inspector because if you buy a home in need of great repair, you may not be getting the best deal. Additionally, your home does not come with a warranty to help with any damages, the funding must come from somewhere else.

Always take into account the situation you are in before making a purchase on any home. Even if the price is nice, if a home does not provide the best environment to invest and grow into, it is not a great deal.