Housing ReliefSome people feel like they’ll be renters forever and paying off their landlords’ mortgages instead of their own. Why? Because most homes may seem out of their reach due to high prices, but some houses could be considered steals.
They’re called HUD homes, and we’ll discuss whether or not they could be the right fit for your dreams of becoming a homeowner.
What Is the HUD?
“HUD” stands for the Department of Housing and Urban Development. Started in 1965, this agency was put into place to fight poverty and give low-income people in urban areas the ability to find safe and affordable housing.
One way in which the HUD makes housing affordable is through its Section 8 program that pays a portion of the rent directly to the landlord. Another is through FHA loans that are easier to acquire than other mortgages thanks to their less stringent requirements on credit score, down payment, and closing costs.
What Is a HUD Home?
If a borrower cannot pay their FHA loan and default on it, that home becomes a foreclosed property. The FHA pays off the remaining balance of the mortgage and takes ownership of the property.
Once that happens, the property officially becomes a HUD home, and the agency will put it up for sale at a price that’s usually below market value. This affordable selling price is used to sell the home quickly so the HUD can recoup its costs due to the loan’s borrower defaulting.
How To Buy a HUD Home
One issue many people have with buying a home is how investors seem to sneak up in line and secure properties. With HUD homes, people looking to use the house as a primary residence are first in line. You will not be able to buy a HUD home if you bought one in the last two years. And if you do buy one, you will have to live in it for at least one year.
As mentioned, the HUD wants to move these houses as quickly as possible. Besides listing them at prices below market value, the agency sometimes uses programs to entice buyers to bite.
For example, the HUD may offer vouchers for homeownership that pay a portion of the mortgage or housing expenses. Through their One Dollar Program, families with low or moderate income may be able to buy a house that’s been on the market for six-plus months for just a dollar.
To make down payments more affordable, the Hud $100 Down Program may let you buy a house with a down payment of just $100 instead of 3.5 percent of the purchase price. If you’re a public servant like a police officer or teacher, you could use the Good Neighbor Next Door Program to get 50 percent off a home. Lastly, the HUD’s Non-Profit Program lets community organizations buy homes at a 30 percent discount. They can then revitalize the homes and sell them to low-income families.
As for whether or not a HUD home is right for you, it could be if you’re looking for an affordable property where you’re first in line over investors. And if you want a low down payment, cheaper closing costs, and a loan that’s easier to obtain, it may be your best bet.
What’s the downside to a HUD home? Restrictions on selling it, as you’ll need to live in it for a year. You’ll also need to use a HUD-approved real estate agent in the buying process, and you’ll be buying the home “as-is,” so there may be some renovation work necessary.
