The FHA official site has a special section for buyers interesting in purchasing HUD homes–properties that were once purchased with an FHA guaranteed mortgage but later foreclosed upon and now owned by FHA/HUD.
According to the FHA page “About Buying HUD Homes”, these properties are single-family homes with one to four units, offered for sale to “recover the loss on the foreclosure claim.”
Anyone can purchase a HUD home; “If you have the cash or can qualify for a loan (subject to certain restrictions) you may buy a HUD Home. HUD Homes are initially offered to owner-occupant purchasers (people who are buying the home as their primary residence). Following the priority period for owner occupants, unsold properties are available to all buyers, including investors.”
Since HUD homes are foreclosed properties, they may or may not be in good condition. The FHA offers home loans to let buyers purchases such properties, but warns borrowers that it does not guarantee their condition.
A home inspection is a very important part of the home buying process for any FHA home loan or conventional mortgage, but even more so with the purchase of a foreclosed property.
Some borrowers are fully aware that a HUD home will need extensive repairs in some cases, which is why the FHA offers a 203(k) rehab loan to qualified borrowers for the purchase of HUD-owned properties. The FHA says the following about 203(K) loans for HUD homes:
“If you are interested in acquiring a HUD Home that is in need of repair, you may be interested in applying for an FHA 203(k) Rehabilitation Loan. When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods.”
FHA 203(K) loans help a borrower avoid this. “The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.”
The FHA and HUD list available properties on the official HUD Homes For Sale page, also known as the HUD Home Store.
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