Posted by Jace Stolfo on Tuesday, November 27th, 2012 at 12:07pm.
HUD Homes are homes owned by the U.S. Government. "HUD"stands for the U.S. Department of Housing & Urban Development.
How Do Homes Become Owned By HUD?When a person buys a home using an FHA loan (Federal Housing Administration), FHA guarantees the loan against default for the lender (e.g. BofA, Wells Fargo, etc.). If the homeowner defaults on the FHA backed loan and goes through foreclosure, FHA pays off the lender and HUD is given title to the property.
One the primary advantages for purchasing HUD homes are for FHA buyers. Many properties that have been through foreclosure will not qualify for FHA financing due to the need for repairs. However, HUD has an FHA appraisal done on the property prior to it being listed to identify any repairs that would need to be completed in order to obtain FHA financing. The repair cost is then put in an escrow account to be completed after closing (Note: the amount is rolled in the new FHA loan).
Other REO type of properties will typically not allow any repairs prior to closing. Nor will the lenders allow an escrow repair account, therefore excluding many FHA buyers. These special provisions provided on HUD homes can be a great way to help FHA buyers get into a home.
Another benefit of bidding on HUD homes is the responsiveness to the offer. Typically, you'll get an answer on your offer within 24-48 hours.
What Are The Disadvantages Of Purchasing HUD Homes?
Like many governmental entities, the closing process is a bit cumbersome and bureaucratic. Buyer's need to have a lot of patience and need a broker who knows HUD procedures to successfully keep the transaction on track for closing.
Disclaimer: Information deemed reliable but not guaranteed.