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What Are HUD Homes, and Are They a Good Deal?
Before we look at what is "HUD home," it's helpful to know a little about the background of HUD itself.
HUD is an acronym for the Department of Housing and Urban Development, a high-level federal agency. It was initially set up over 50 years ago in the mid-1960s by the government with the key objective to combat poverty and encourage homeownership. HUD tries to ensure that individuals in urban areas have access to suitable, quality housing that is affordable and inclusive.
The head of HUD, the Secretary, works with and supervises the Federal Housing Administration ("FHA"). The FHA manages public programs that aid community development and offer rental assistance to those in need.
It also helps homebuyers who don't qualify for conventional loans obtain affordable mortgages from the FHA. The government secures such mortgages. The mortgage insurance program run by the FHA offers low-income home buyers, or those with a poor credit rating, the opportunity to qualify for loans from the FHA. Other programs enable those wishing to buy their own home and get on the property ladder.
So, What Are HUD Homes?
Generally speaking, HUD homes are homes that have been repossessed or taken back from the mortgagee (the person initially securing a loan to buy it) by the FHA. This process is usually called "foreclosure" or "foreclosing."
To explain further: foreclosed properties, which must be between 1-4 units, were originally purchased by the current owner with a loan from the FHA. The FHA will step in when a homeowner cannot keep up with their monthly mortgage payments and defaults on their loan. They will pay the remaining mortgage balance to the lender, and take possession of the property.
Such properties then become HUD properties. But they have no long-term interest in owning these homes and try to sell them to new, qualified owners as reasonably quickly as possible.
Are HUD Homes Good Value?
As part of the continuing objectives regarding homeownership, the government wishes to sell these homes quickly. Therefore, they are often sold slightly below market value.
HUD homes are initially appraised to determine current market value and then priced accordingly with a discount to the market price. This discount varies according to the particular circumstances and the physical condition of the property.
Such homes are sold in their current condition, or "as-is," with no repairs or improvements to the house before it's sold. However, having said this, HUD usually does make sure that there are no significant problems. This is as, firstly, the new buyer will need to obtain a mortgage. Secondly, these properties will have previously benefited from a mortgage, and it's just that the mortgagee defaulted.
Other Incentive Programs
There are various incentives to encourage buyers to bid for a HUD home. One example is the Good Neighbour Next Door loan, which is usually available for homes in rejuvenated and upgraded areas. Community workers such as police officers, firefighters, and EMS personnel who plan to live on the property for at least 36 months will be eligible for a 50% discount on the purchase price: a handsome deal in anyone's eyes!