How do I finance a HUD Home?

If you’re considering purchasing a HUD home, you may be surprised to learn the process isn’t drastically different than a traditional sale. Additionally, there are some fantastic financial incentives to purchase this type of property. Here we’ll break down what a HUD home actually is and the financing options available to potential buyers.

First off, what is a HUD home?
The Federal Housing Administration (FHA) is the part of the U.S. Department of Housing and Urban Development (HUD) that provides federal mortgage insurance. If a foreclosed home was purchased with a loan insured by the FHA, the lender can file a claim for the balance due on the mortgage after the foreclosure. The FHA pays the lender’s claim, then transfers ownership of the property to HUD, which then sells the home.

What are my financing options for a HUD home?
There are several options buyers can take advantage of if they’re seeking a HUD home as their primary residence.

  • $100 Down Program – While the buyer is still responsible for the earnest money and must submit to typical FHA lending guidelines, you can purchase a HUD Home with only $100 down. This is a great program for first-time home buyers looking to purchase a home.
  • Good Neighbor Next Door (GNND) – Designed to enhance urban communities, this type of financing offers discounts to firefighters, EMT’s, police and teachers. They receive 50% off the property list price and require only a $100 down payment. The property must be located in a designated revitalization area, and the buyer must live and work in the same county as the home. Also, the buyer must live in the home for at least 36 months.
  • 203(B) Repair Financing – If the HUD home you are looking at needs under $5,000 of repair work, you can finance the cost by using the 203B loan. This option is available on 1 to 4-unit single family homes, manufactured housing and condos.
  • 203(K) Streamlined Financing – This type of loan offers up to $35,000 to improve the condition of a HUD home. This includes repair, replacement, and upgrades as well minor remodeling and even painting. You can also finance appliances (not to exceed $2,000) with this loan.
  • Energy Efficiency Mortgage (EEM) – Aimed at increasing energy efficiency, this loan allows buyers to finance 100% of a cost-effective “energy package”. The cost of the improvements, including maintenance, is less than the present value of the energy saved over the useful life of those improvements. Plus, an EEM may be used with 203(B) and 203(K) loans.

Because asking prices for HUD homes are typically lower than traditional home listings, they’re very appealing to first time buyers or buyers in areas where inventory is low, such as Denver. If you’re interested in checking out HUD homes in Colorado, the first thing you’ll want to do is find an agent experienced with these types of sales. Metrowest specializes in these types of sales – give us a shout today, we’d love to help you start the process.

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