One of the main factors that help stabilize a family’s living conditions is having their own home. Having a home creates a safe environment for the family to spend time together. It also helps kids grow up somewhere familiar while enriching their relationships with their parents. But buying a house without going through financial stress has become a challenge for the majority of Americans. Thankfully, this is something that the Department of Housing and Urban Development is also aware of. According to HUD, a family shouldn’t spend more than 30% of its monthly income on housing expenses. To some, that might seem like an impossible task to achieve. But, that’s why HUD created a series of housing assistance options to make affordable housing more accessible.
There are plenty of affordable housing programs created by HUD. Some of these programs can help eligible applicants rent houses for cheaper, others may help them buy houses for cheaper. The main focus of housing assistance applicants should be to find out which programs they’re eligible for. Different federal housing assistance programs will have different qualifying criteria. It can be useful to visit the HUD website to learn more about available programs. But for those interested, Benefits.gov can also be very helpful. Not only does that website list available federal assistance programs, but it will also help you find out which ones you’re eligible for. This is done through a simple questionnaire called Benefit Finder.
For this article, we’re looking at one specific program. HUD Homes. HUD homes are basically homes that were foreclosed by HUD. We’re here to discuss what foreclosure is, why these homes get foreclosed and how to actually buy one of those homes.
What Is Foreclosure? Why Does It Happen?
Most people don’t have the cash in hand to buy houses right away. In most cases, buyers will apply for a loan from a private- or public-sector lender to pay off the house price. This loan is called a mortgage. In some unfortunate cases, borrowers/buyers fail to pay off their mortgages. In that case, lenders will foreclose their homes, meaning that they will take over ownership of the house. When it comes to homes foreclosed by the Department of Housing and Urban Development, those mortgage loans come from the Federal Housing Assistance Department (FHA). Hence, borrowers who fail to pay off their FHA loans will have their homes foreclosed and given to HUD to sell.
What Is An FHA Loan? How Can I Apply For It?
Among the most popular federal mortgage programs is the Federal Housing Administration loan. This mortgage program focuses on helping low and moderate-income families to buy their own homes. Basically, the government ensures your loan. That means when you’re applying for loans from private lenders, such as banks, you’ll have a better chance of getting accepted, with a lower credit score than usual. This type of loan would also help you buy your own home while paying less in down payment upfront.
If you have a credit score of 580 or above you may be eligible for a mortgage that will pay for 96.5% of your new house’s value. That means you’ll only be left with 3.5% to pay as down payment. Also, if your credit score is somewhere between 500 and 579, you may get a mortgage that’ll cover 90% of the house cost. FHA loans, just like any other federal assistance programs comes with a set of eligibility requirements:
- Financial History
- Employment History
- Credit Score
- Debt-to-Income Ratio
- Plans That You Have For Property
Depending on your situation, you may come across other requirements. But as a general rule of thumb, you’ll need to meet all the requirements we mentioned above.
Why Should The Government Go Through All The Trouble?
If you think about it, it’s a pretty long process. The government will lend people money to buy homes. Then, these folks might not be able to pay off their loans, that’s when the government will foreclose the homes. After that, the government will put up these homes for sale, and potentially lend other people money to help them afford to buy these homes. It all goes in a full circle, but what’s the point?
The answer is pretty simple really. First of all, the more people with stable housing the better. Stable housing can be a supportive pillar for homes that aim to develop their kids’ education. Also, stable housing is almost directly connected to decreasing the likelihood of committing crimes. Furthermore, having people to live in those houses almost definitely ensures that the houses will be maintained at a livable standard. Finally, the acts of circulating money through loans, purchases, and repayment stimulate the economy, which is great for everyone.
How To Buy One Of Those HUD Homes
Now that we’re done talking about how HUD acquires homes, let’s talk about how you can get yourself one. First of all, to find all HUD Homes listings, you should visit the HUD Home Store. The page will include all available listings for homes around the country. To help you avoid getting frustrated by too many options, the page offers you filters that will help you narrow down your options. The purchase of a HUD home is done through a bidding process.
You can practically put any number you want as your bid for a HUD home. HUD is not looking to make profit out of selling these homes. As a matter of fact, HUD accepts bids that are 85-88% of houses’ values. Realistically though, you need to keep in mind that you’re not the only one who’s looking to buy a house for cheap. So, if you bid too low, someone will likely outbid you. Also, if your bid is too low, it might not get accepted to begin with.
Here’s how the bidding process should go:
- Come up with a realistic budget for the house you intend to buy. It would be a shame if you take an FHA loan and not be able to pay it back. If that happens, that house will just get added back to the list of foreclosed homes.
- While you’re going through listings on HUD’s website, take your time to compare your different options. You might also come across listings that will include only one picture. If you find yourself interested in those, drop by the house and take pictures for yourself.
- You can’t just bid on the house yourself. In order to bid for a HUD home, you’ll need a HUD-licensed realtor. You’ll probably find one mentioned in the listing, you don’t have to choose those, any HUD-licensed realtor will do.
- An important step to take is to visit the house. You need to walk around the place, get a feel for it, take pictures, and take notes. If it’s going to be your new home, you really need to know everything about it.
- A professional inspector is almost necessary when it comes to homes that you know practically nothing about. You need to know all the ins and outs of the house, and an experienced inspector is a surefire way to know everything.
- Although we don’t recommend rushing into buying a house, there’s something you should know. HUD will only keep listings exclusive to people who intend to live in them for 30 days. After that, the market for a house will be open for everyone, including people just looking for houses to invest in.
Can I Bid Several Times?
You can always bid again if your bid was unaccepted or if someone outbid you. Obviously, you’ll need to bid with a higher number, that’s how bidding works. But also keep in mind that HUD drops the price of the houses by 10% every month the house doesn’t get sold. So, if you have your eyes on a certain house and there doesn’t seem much competition for it, give it some time, you might get a decent discount.
What You Should Look Out For When Inspecting Houses
When you’re looking into buying a new home, you need to understand what kind of place you’re buying. Also, you need to know what kind of maintenance the place will need. Realistically, if the house was foreclosed, that means that previous tenants were short on money. Subsequently, there’s a good chance the previous tenants didn’t spend a lot on maintaining the place. For fixing a place up, you’ll need to know your budget, on top of what you’re paying for the place itself. There are several housing assistance programs out there to help you with that as well. Here are some of the things you should look into:
- Cell Service
- Heating and cooling systems
Good Neighbor Next Door
Besides having HUD homes that are usually priced lower than the general market, there are other, related housing assistance programs that you could use to get even better prices. One of those programs is called, ‘Good Neighbor Next Door.’ This program aims to help teachers, police officers, firefighters and emergency medical technicians buy houses for cheaper. Through this program, eligible buyers can get a 50% discount on homes they wish to buy. Much like every other federal housing assistance program, this one comes with a couple of requirements:
- Houses purchased under the Good Neighbor Next Door program must be located in revitalization areas. The Office of Policy Development and Research recognizes revitalization areas as “HUD-designated geographic areas authorized by Congress under provisions of the National Housing Act intended to promote ‘revitalization, through expanded homeownership opportunities.’”
- Eligible buyers must live in the house for at least 36 months.
Houses where the Good Neighbor Next Door program is applicable will be listed separately on HUD’s website.
Most of us want to own our own houses. It’s nice to be able to have your own place, do whatever you want to it, and keep it as an investment for later. But, with everything going on with the economy, house prices have been increasing at a crazy rate. Having a global pandemic around doesn’t really help a lot of people make more money or save it. Jobs are getting less available, and the competition is higher than ever. Thankfully, there are government-based housing programs that can help us find a place to call our own without going completely broke.
HUD homes are a great place to start if you’re looking for a house to buy. These houses were taken away from people who didn’t pay off their mortgages for a long time. HUD doesn’t aim to make profits out of the houses, so the prices are pretty decent. Take your time to look for houses that you might like, visit them, then make a decision. When you’re ready, make a sensible bid and keep your fingers crossed you land the house of your dreams.