Guide to Buying a HUD Home

Buying a HUD home is different from buying a regular home in several different ways. HUD homes are foreclosed homes that are acquired by the U.S. Department of Housing and Urban Development (HUD). While everyone can potentially qualify, certain types of home buyers get priority. HUD Homes tend to be cheaper than privately owned homes. However, the number of HUD homes are limited, and they may not necessarily be located in your area. So, if you are going to buy a HUD home, you will need to be properly prepared.

Understanding HUD Homes

Originally, HUD homes were private properties that were purchased using mortgages backed by the Federal Housing Authority (FHA), an agency of HUD. All HUD Homes are residential properties that can include anywhere between one and four units.

When a home is purchased using an FHA-backed mortgage, the private mortgage lenders issued the actual mortgage while FHA provided security. This means that, if the owners wind up foreclosing on their properties, FHA must pay the mortgage whatever money the borrower still owed. 

As for the homes themselves, they become the property of HUD. HUD hopes that selling the home will allow it to recover the money it lost during the foreclosure. That is why it is in HUD's best interest to resell the home as soon as possible.

Who Can Buy a HUD Homes

In order to buy HUD home, you will need to be a U.S. citizen or a permanent resident alien. Your credit history and income must be good enough to allow you to take out a mortgage loan from a private lender. If you cannot meet those guidelines, you may be able to qualify for an FHA-backed mortgage loan.

Home buyers who are interested in buying HUD homes as primary residences can buy HUD homes during the priority period. If HUD has any homes left after the priority period ends, those remaining homes will become available to all buyers. So, if you are looking to buy an HUD home for investment purposes, you may not be able to get it.

HUD Home Discounts

Most buyers have to buy homes at whatever prices are listed at HUD's official website. The prices are based on the homes' appraised values (though they will actually cost less than what the properties of the sale value would cost in the ordinary housing market). If you are an evacuee who was displaced by Hurricane Katrina, Wilma or Rita, you may be able to purchase a HUD home at a discounted price. You will also be able to get a 50 percent discount if you are a law enforcement officer, a teacher, a firefighter or an emergency medical technician. However, that discount only applies if the home is located in the federally designated FHA Revitalization Area. FHA Revitalization areas tend to have lower median income and higher rates of foreclosure than other areas.

Finding HUD Homes

HUD lists all HUD homes that are currently on the market on its official website. You can use it to look up homes by state, county, city and even a street. You can further narrow it down by size, prize and number of units. You can also look up the property directly by driving around your area and seeing if it has any foreclosed homes. All HUD homes will be labeled as such on their front doors.

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