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If you would like to buy a HUD home, you need to be aware of the risks.

The process is slightly different (and more involved!) than purchasing a typical single-family home.

Here is everything you need to know before you buy a HUD home.

What is a HUD home?

A HUD home is a home that the Federal Department of Housing and Urban Development (HUD) owns. While HUD properties are technically government housing, they are different from Section 8 housing.

This is because HUD homes' construction isn't subsidized by the government. Instead, the former homeowner simply used a Federal Housing Administration (FHA) loan to purchase the house.

The Federal Government created the Federal Housing Administration during the Great Depression. Its purpose is to help low and moderate-income Americans qualify for housing financing. Typically, if you can't qualify for a regular mortgage due to low credit or low income, you can receive an FHA loan.

FHA loans only require a small down payment. With conventional loans, you must pay up to 20% of a home’s purchase price as a down payment. However, if you plan to pay for the property using an FHA loan, you can put down as little as 3.5%.

While this is a great deal, sometimes these homeowners are still unable to make the mortgage payments on time. Therefore, the home still goes into foreclosure. The real estate then reverts back to the Department of Housing and Urban Development.

In order to avoid a total loss, the department then resells these foreclosed homes, creating what we call HUD homes.

HUD Home Sale vs. Conventional Sale

Buying a foreclosed home sometimes carries a stigma. This is because the former owner did not willingly put the home on the market. They were forced to.

However, because of this, banks (and the government) often sell homes like HUD homes for below their market value. This is because they just want to offload the houses.

While there are certain qualifications to receive an FHA loan to purchase a home, once that home becomes a HUD property, anyone can purchase it. There are no buyer restrictions.

It is also important to remember that HUD homes are not Section 8. Section 8 is a government program to assist low-income families with renting a property, not purchasing one.

Benefits of HUD Homes

There are many benefits to purchasing and living in a HUD home! The main benefits are the HUD special buyer programs.

The One Dollar Program

Under the One Dollar Program, local governments are able to purchase HUD homes and offer them as housing to low-income families.

For a house to be eligible, it must be listed for over 180 days and be worth less than $25,000.

Good Neighbor Next Door Program

If you work in public service (such as a police officer, firefighter, EMT, or teacher) then you are allowed to purchase a HUD home for 50% off.

The Good Neighbor Next Door program is only for owner-occupied properties. This means the individual buying the home must live there; investors cannot participate in the program.

The Non-Profit Program

The Non-Profit Program allows faith-based organizations, like churches and synagogues, to purchase HUD homes and resell them to low-income people and first-time homebuyers.

Risks of HUD Homes

The major risk of purchasing a HUD home is that they are all sold as is.

If the heater goes out or the foundation is cracked, the buyer needs to make all of the repairs. There's no repair contingency possible here. This is why it is especially important to complete a thorough home inspection before placing your offer. This way, you already know what kinds of repairs might need to be completed and can place a bid with them in mind.

However, do not assume that every single HUD home will be a fixer-upper. Some are completely move-in ready! If for some reason you do pick a dud, you have to live in a HUD home for one year from closing before you can sell it.

How to Buy a HUD Home

You need a Realtor to purchase a HUD home. You cannot make a bid on one yourself. Your Realtor must also be officially registered with HUD.

You can purchase a HUD home with cash or any type of mortgage.

Here are a few common loan options:

FHA Mortgage Loans

As mentions, FHA loans allow buyers to have low credit scores and make a small down payment.

VA Loans

If you are a veteran of the US Armed Forces you can use this loan. You don’t need a down payment or mortgage insurance for a VA home loan. This could save you thousands of dollars a year.

Conventional Loan

This is the most common type of loan. You receive this loan through a private lender, like a bank or mortgage company. The required down payment for a conventional loan is typically higher, usually up to 20%.

FHA 203K Loans

These loans provide additional cash to make repairs to a fixer-upper. A 203K loan is a type of FHA loan and requires the same guidelines. However, the only difference is that the minimum credit score is higher. It is 640 instead of 580.

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Interested in purchasing a HUD home, but need some support? The professional team of agents here at Clever are here to help. All for just one flat fee. Call us today at 1-833-2-CLEVER or fill out our online form to get started.


Andrew Schmeerbauch

Andrew Schmeerbauch is the Director of Marketing at Clever Real Estate, the free online service that connects you top agents to save on commission. His focus is educating home buyers and sellers on navigating the complex world of real estate with confidence and ease. Andrew has worked on projects for the United Nations and USC and has a particular passion for investing and finance. Andrew's writing has been featured in Mashvisor, L&T, Ideal REI, and Rentometer.

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