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GET ANSWERS TO YOUR HUD-RELATED QUESTIONS
Chances are, the questions you have about HUD foreclosures have been asked by many others like you. We have provided answers to the most frequently asked questions regarding HUD homes.
WHAT IS HUD?
HUD (the U.S. Department of Housing and Urban Development) is a Cabinet-level agency created by the Housing and Urban Development Act of 1965. Its secretary serves as a presidential appointee.
HUD’s mandate is to oversee the federal government’s housing agencies and programs such as the Federal Housing Administration (FHA), the public housing, equal opportunity in housing and urban renewal programs to name a few.
WHAT IS THE RELATIONSHIP BETWEEN HUD AND THE FHA?
HUD is responsible for overseeing the activities of the Federal Housing Administration (FHA). The main directive of the FHA is to provide mortgage insurance to approved lenders throughout the United States and its territories. The FHA insurance in effect guarantees the lender against any losses due to borrower default.
Those approved lenders fund mortgages to qualifying borrowers under the FHA guidelines in the purchase of homes in certain areas around the country. Should the borrower default on their FHA insured loan, the property will go through the foreclosure process, HUD pays off the remaining balance of the loan to the lender and becomes the new owner of the foreclosed property.
Since HUD is not in the business of owning real estate, it turns around and sells the property (referred to as HUD homes) through approved real estate agents and brokers.
WHO PAYS FOR THE FHA MORTGAGE INSURANCE AND FOR HOW LONG?
The cost of the mortgage insurance is passed along to the borrower. The amount of the premium is included in the borrower’s monthly mortgage payment. In most cases, the insurance cost drops off after five years or when the remaining balance on the loan is 78 percent of the value of the property — whichever is longer.
This is potentially important to anyone interested in buying a HUD home foreclosure, since like in any real estate transaction the buyer must at some point arrange for financing. Buyers of HUD homes can pay cash if they want, or they have the full spectrum of loan options available to them — even possibly an FHA insured loan.
HOW DO YOU BUY A HUD HOME?
Purchasing a HUD home requires submitting a bid to HUD during the allotted listing period. All bids (offers) must be made by a HUD approved real estate agent or broker. All bids submitted during the listing period are reviewed and the highest acceptable bid will be accepted by HUD.
HUD lists the properties for sale through multiple listing services (MLS) as well as through its website:www.hud.gov. All properties are maintained through management companies contracted with HUD. All properties are sold in “AS IS” condition which means HUD will not repair the property in any way, so it is highly recommended that would be bidders pay for a professional property inspection up front before submitting their bids.
The first bids to be reviewed are those submitted by potential owner-occupants of the property. If no bid from an owner-occupant is accepted by HUD, then the next bids to be reviewed are those submitted by members of the general public (investors).
HUD will pay the buyer’s broker commissions and closing costs in many cases, although those costs must be added into the offer when submitted. An offer that does not include those costs will usually be considered more favorable to HUD than those that do include them since it means a higher return to HUD on the property.
Once HUD accepts a buyer’s bid escrow is set to typically close somewhere between 30 and 60 days.
ARE THERE ANY SPECIAL PROGRAMS AVAILABLE FOR HUD HOMES?
Yes, HUD has a number of programs available. For one, in designated areas around the country HUD homes are available at reduced prices to law enforcement officers, firefighters, emergency medical technicians, teachers, nonprofit organizations and local governments.
HUD also offers the 203(K) program designed to help new owners of HUD homes repair those homes through a loan that is repaid as part of their mortgage. This program is not available on all HUD homes in all areas, however, so buyers need to ask their real estate agent or broker if the program is available for the particular home they are interested in buying.