Purchasing a HUD home is a unique experience for buyers. Understanding how HUD (Housing & Urban Development) and FHA (Federal Housing Authority) go hand in hand to help first-time homebuyers secure a home within their budget is an important piece of the HUD home purchasing process. Are you ready for homeownership? Do you know what to expect when you decide on going the HUD route? We want to be part of making your dream of homeownership a reality. While the HUD Buyer’s Guide is certainly the best place to begin, there are other procedures we can help with so are able to you identify, understand, and manage the transaction. We created a visual aid to give you an idea of the process:
A Little More Complicated
For first time homebuyers, a HUD home may seem like an ideal situation in a tight seller’s market. However, the purchase process is very different from traditional and REO (Real Estate Owned) transactions. Homes become owned by HUD when FHA-backed loans have gone into default, prompting a foreclosure. The FHA pays a lender’s claim and then takes possession of the property, thus making it a HUD home and eligible for sale. The process of foreclosure can be quite long in any default situation, but since there are extra steps in the foreclosure of a HUD home, the process can take quite a bit longer. Once the home is ready for sale, it goes up for bid. All HUD homes are sold through a bidding process. This is one of the key steps in purchasing a HUD home: making certain you are prepared for the possibility of losing out to another bidder. Patience can play a big role in this. If you aren’t in a rush, you can usually find a home that suits you.
Another unique circumstance with HUD purchases is the condition of “as-is.” HUD homes are assessed and priced at fair market value, with the cost of repairs reflected downward in the list price. Traditional sales typically involve some negotiation with the seller for repairs and other concessions, but a HUD home is put up for sale exactly as it is – blemishes and all. Sometimes the repairs can be extensive, and subsequently expensive. Ordering a home inspection from a qualified HUD inspector is one of the best investments you can make when purchasing a HUD home. Repairs that cost less than $5,000 are eligible for FHA-backed financing, which can open up a few financing options for you. A HUD home that’s been determined to have more than $5,000 damage won’t be FHA-insured. Sometimes this is a deal breaker, depending on the MUST DO repairs. Understanding that repairs are your responsibility is another step toward making sure you are ready.
Financing for HUD homes comes with a few options. You can secure financing through traditional lenders, but they must be FHA-approved. FHA-guaranteed loans can be particularly attractive to buyers with credit issues, as people with FICO scores above 580 are considered eligible for FHA-backed loans that only require 3.5% down. Coming up with a downpayment can be difficult, but FHA financing allows you to acquire the money needed for a downpayment through gifts from friends, family, or a charity. HUD offers a product called a 203(k) that allows a borrower to finance both the home and the cost of repairs. There are several other considerations when deciding on financing, however, including your debt-to-income ratio, insurance premiums, an FHA-approved appraisal, and potential repair costs. Doing the math with your agent before you start looking for a HUD home helps you set realistic expectations for what you can afford.
The Good Neighbor Program
This is one of our favorite aspects of HUD and the concept of building community. The Good Neighbor Program was created by HUD to offer law enforcement officers, teachers, firefighters, and EMT’s to purchase homes with a $100 down payment and pay 50% of the list price of a HUD home. The program was created to strengthen communities and encourage home ownership among this group of people. If you are looking to purchase a HUD home, employed in one of the professions named above, and work within a certain radius of where you want to buy, you may qualify.
HUD for Louisiana
Audubon Realty is a HUD-approved broker and we’re ready to guide you through the process of buying a HUD home. We have a video and guide for HUD on our website you can read along, or just listen. Rely on us for expertise and service. Ready to own a home? Contact us today!