The biggest advantage of buying a HUD-owned property is that it will likely mean finding a great deal! This is true whether you are an investor or a typical homebuyer looking for a permanent abode.
What is a HUD Home?
Before buying a HUD home, you need to know first exactly what they are. When a homeowner with a Federal Housing Administration (FHA) mortgage defaults on their loan, the department will foreclose the property. The U.S. Department of Housing and Urban Development (HUD) then takes control of the property and sells these homes on the open market. The good thing about HUD homes is they are affordable, and they are easy to find.
Be prepared before you buy a HUD home -- don’t rush to buy just to get a good deal. There is more to know before making that HUD home purchase. Start with determining which type of HUD home is right for you.
What are the types of HUD Homes?
In choosing which HUD home you will buy, you need to consider more than just the home's value. You have to determine which type of HUD home suits you too. The two kinds of HUD homes are insured and uninsured HUD homes. Insured HUD homes are better for owner-occupants. Uninsured HUD homes, on the other hand, are better for investors. You'll know why as we go along the description of each type.
- 1. Insured HUD Homes
- • Insured homes are eligible for FHA loans.
FHA loans are government-backed loans that require low down payments. They also have less strict criteria in order to get your loan approved. Insured homes are usually in better condition than uninsured homes. They are also sold first to owner-occupants since they need fewer repairs. Owner-occupants are prioritized by HUD more than investors.
This is one reason why insured HUD homes are more beneficial to owner-occupants and less advantageous for investors.
- • Insured HUD Homes need less than $5,000 in repairs to make them habitable.
Before HUD sells the home, it will undergo a home inspection. This process is present in every home sale wherein a professional inspector will assess the home's overall condition. The inspector will determine whether the repairs fall under what's allowable for an insured HUD home or not.
- • The buyer pays for the repairs of insured HUD homes.
Since the HUD home is sold as-is, repair expenses are inevitable. With insured homes, the buyer's allotted money for repairs is put into an escrow account before the home sale process is completed. The buyer needs to complete these repairs, and if they don't, they will lose their escrow repair funds.
Owner-occupants who researched well about HUD homes always look for the insured ones. It is a smart move because they know repairs will be minimal. Even though repairs are not likely to exceed $5,000 in costs, it is still important to examine the HUD home before placing a bid or offer. Deposits are non-refundable if in case the HUD home is not awarded to you in the end.
- 2. Uninsured HUD Homes
- • Uninsured HUD homes are not qualified for FHA loans.
They are not eligible to be financed by FHA due to the extent of the repairs. In case you are still opting to buy an uninsured HUD home, there are other loans you can take advantage of. You have the option of using any financing as long as the HUD homes meet the guidelines of the lender. FHA 203k rehabilitation loans might also be an option if the repairs reach a very costly amount.
- • Uninsured HUD homes are properties that need major repairs amounting to $5000 or more.
HUD homes are sold in as-is condition. That is why it's important to check the extent of the renovations you may need to do. Hiring a property inspector will help you assess if the risks are worth it. And it is crucial to get this done before placing a bid on the HUD property. Unlike other home sale transactions, deposits you pay to HUD are non-refundable.
Whether you're buying an insured or uninsured HUD home, it is important to assess the risk first. Research and preparation are necessary before making a decision.
It is advisable to hire an experienced and HUD certified REALTOR® to guide you through the process. If you need more information about HUD homes or would like to see a fresh list of HUD homes for sale in NC or SC, please call me, Nancy Braun, at (704) 997-3794. I will advise you on the best options for what you are looking for, whether owner-occupied or as an investment to add to your portfolio.
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