What is a HUD Foreclosure?
HUD is the term used for the name of the US government’s Department of Housing and Urban
Development. HUD’s mission is to increase homeownership, support community development
and increase access to affordable housing. To do so, HUD sponsors special mortgage
programs and insures loans for qualifying home owners. These loans are not immune to
foreclosure, however. When someone with a HUD-insured mortgage cannot meet the
payments, standard foreclosure activity follows, and the lender repossesses the home. But,
unlike an REO foreclosure, the HUD homes transfer ownership to the government (HUD), who
then pays the lender what is owed. HUD then becomes the motivated seller interested to sell the
home as quickly as possible, often at a discounted price. There is great potential for significant
savings in buying one of these government repossessed homes.
HUD foreclosures are sold “as-is,” without warranty. That means that HUD will not pay to correct
any problems. Even if HUD homes need some repair (and not all of them do), they can offer
some of the best bargains in home sales because special government sponsored buyer
programs may be available on these homes. And available only on government repossessed
homes. These programs will change from time to time, so qualified buyers need to act fast to
secure the best deal available on HUD homes.
Programs will from vary state to state. The more common programs include purchase price
assistance (including a 50% discount off the list price of HUD homes), vouchers, special low
cost loans to help pay for repairs, closing cost assistance, and more. Be sure to read up on
these programs as you learn more about how to buy a foreclosed home.
One popular program is called Good Neighbor Next Door (GNND). Certain homes in HUD’s
foreclosure listings are located in designated revitalization areas. To encourage sales of these
homes to stable, upstanding citizens in these areas, HUD offers a 50% discount from the list
price of these HUD homes. In exchange for the discount, buyers must commit to a minimum
occupancy term, usually 36 months or more. Special qualification requirements and mortgage
programs are part of GNND, so you will need to be sure to review these details with the special
contact person responsible for the sale. And these homes are only available for a brief time:
only 5 days from the day of listing. So be organized and be sure you are regularly watching out
for the HUD foreclosure of your choice or you might miss your chance.
Homeownership vouchers may also be available to help you purchase government
repossessed homes. For those who qualify, HUD’s local Public Housing Agency can provide
financial help to first-time home buying families. Depending on your qualification, you could
apply this financial assistance, usually covering 30% of your monthly payment, to mortgage
payments on a HUD foreclosure you buy.
Since HUD foreclosers are sold “as-is”, they may be in need of repair prior to move-in. To help
buyers afford to make repairs, special loans are available under the 203(k) program to help
home buyers pay for both their home purchase and the cost of repairs. Home repair loans can
be expensive, but the 203(k) allows a single, long term loan which save the borrower and lender
time and money. By rolling all costs into a single, affordable payment, the buyer of the HUD
foreclosure can enjoy a better quality of life and the lender can be assured the property is in
better shape and remain secure in receiving payments.
Other programs may be available where HUD pays closing costs, provides buyer credits or
issue special affordable loans in conjunction with the FHA (Federal Housing Authority). With
great inventory to choose from, and a variety of programs to assist buyers, HUD homes are a
fantastic opportunity for home buyers right now.
If you are interested in pursuing HUD foreclosures, consult BOA Investment Advisors, LLC.