There is a lot of confusion when the term ‘HUD Homes’ are used and there are many who do not fully understand that term. To simplify matters, HUD Homes are homes that are purchased with an FHA (Federal Housing Administration) insured loan. Whenever the person who took out the loan defaults on payment, the home becomes a HUD home. The way it works is like this, because the loan was secured by the government, whenever the borrower defaults the government then settles the lender and the home reverts not to the lender like in most cases, but to the government.
HUD stands for the US Housing and Urban Development. It is an administrative body that takes over homes that have been mortgaged using FHA insured loans. When the borrowers default, HUD takes on the homes and offers them for sale in an attempt to recover whatever loss had been incurred on the foreclosure claim.
For those interested in purchasing HUD homes, here are some quick facts:
1. If you are purchasing a HUD home, it is important to get a professional to inspect the home you are interested in purchasing. This is because the HUD bears no responsibility regarding the state or condition of the home and will not pay for any defect or repairs. In other words, you get the home as it is and have to take care of any defects or repairs on your own.
2. If the home you are planning to purchase needs repair of any sort, it is possible to apply for a loan such as the FHA 203 (K) Rehabilitation loan. This is available to buyers need financing to purchase the home and can be applied for along with the loan to purchase. They are treated as one and the interest rates are kept low.
3. HUD homes are available for purchase to almost all Americans who can either provide the cash or get financing. There are certain conditions that need to be met in order to qualify for financing but it is important to note that HUD does not provide financing for purchase.
4. When thinking of buying a HUD home, it is best to go through a participating real estate agent. As a matter of fact, you would need the agent to submit the bid on your behalf and the real estate agent is contacted if your bid is accepted. Attempting to purchase a HUD home without a realtor is a waste of time.
5. The myth that it is possible to buy a HUD home for a dollar is just that; a myth. HUD homes are sold at top market value, but because they are by a bidding process it is possible to get them at a lower rate than what the current market value is.
HUD homes are a great investment particularly for those who are looking for affordable housing. However it is a good idea to carry out necessary investigations so that you do not end up spending more on repairs and renovations than the house is worth, or than you can afford.