Many buyers in particularly hot real estate areas are considering HUD housing to expand their inventory options. But what exactly is a HUD home? When someone with a government-insured mortgage can’t meet the payments, the lender forecloses on the home and HUD (Department of Housing and Urban Development) pays the lender what is owed. HUD then takes ownership of the home and sells it at market value as quickly as possible. Today we’ll address one of the most common question regarding HUD homes – how much will you need for a down payment?
How much money is required to buy a HUD home?
This is dependent upon a variety of factors, including the cost of the house and the type of mortgage you get. Typically, you’ll need to come up with enough money to cover three costs:
- Earnest money – the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house
- Down payment – a percentage of the cost of the home that you must pay when you go to settlement
- Closing costs – the costs associated with processing the paperwork to buy a house.
When you make an offer on a home, your real estate agent will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies. If you buy a HUD home, for example, your deposit generally will range from $500 – $2,000.
The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20% of the purchase price. That’s why many first-time homebuyers turn to the FHA (Federal Housing Administration) for help. FHA loans require very little in terms of a down payment.
Closing costs, which you will pay at closing, are on average 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you won’t be caught by surprise. If you buy a HUD home, HUD may even pay many of your closing costs.
Are you ready to check out HUD housing options in the Denver area? Metrowest specializes in these types of sales. Give us a shout today – we’d love to help you start the process!