In real estate markets where inventory is low and competition is fierce, buyers are expanding their search options to include HUD homes and distressed properties. But what exactly is a HUD home and how do you know if you qualify for one?
So what exactly is a HUD home?
HUD homes are residential properties that contain one to four units. Properties become part of the HUD (the U.S. Department of Housing and Urban Development) program when the previous Federal Housing Administration (FHA)-backed mortgage goes into foreclosure. HUD recovers the property to sell at fair market value, recovering losses on the bad debt. These properties are sold “as is” with no warranties on the condition of the home.
Can anyone buy a HUD home?
Fortunately, buying a HUD home isn’t all that different from a traditional sale – at least in terms of qualifying. The HUD is not actually a lender, so anyone with the cash or an approved loan can qualify for a HUD property. For FHA-insured properties, buyers can qualify for FHA financing with only 3.5 percent down with a minimum credit score of 580.
The HUD requires owners to reside in these homes after purchase. If the home requires less than $5,000 in repairs, it can qualify as an FHA-insured HUD property. If it needs more than $5,000 in repairs, it is considered an FHA-uninsured HUD property. The differences here are important because investors can bid on the property sooner if it is an FHA-uninsured property. Bids, or offers, are made through a HUD-approved realtor.
Depending on your budget and situation, purchasing a HUD home could be a great option. The first step is to find an experienced pro who is skilled in these types of sales. If you’re interested in checking out HUD homes in the Denver area, contact Metrowest. We specialize in these types of sales and would love to help you start the process!