Who is Eligible to Buy a HUD Home?
The HUDHomeStore is the listing site for HUD real estate owned (REO) single-family homes and 1-4 Unit Multifamily properties. This site provides the public, brokers, potential owner-occupants, state and local governments and nonprofit organizations a centralized location to search the inventory of HUD properties for sale.
Since the FHA has guaranteed the loan on behalf of the federal government, when the foreclosure process is completed, FHA pays off the lender of record and it goes back to HUD as the responsible party for all FHA insured loans. HUD homes are then put for sale at the current market rate with the aim of selling it off quickly and recovering the money. It in fact offers a good option for those looking to buy HUD homes. There are many programs for discounted purchases (these will be covered in another article.)
HUD will sell the property using a HUD broker though a bidding process.
In order to buy HUD homes, one can purchase only through real estate agents approved by the U.S. Department of Housing and Urban Development. Approved agents can submit bids on behalf of the buyer
Owner occupants rank above nonprofits and government agencies in the bid-selection process for Exclusive and Extended listings. During the first 30 days that a FHA foreclosure is listed for sale, only owner-occupants are permitted to place bids; if a successful bid is not accepted by the time the initial priority period has elapsed, bidding is opened to investors.
Home buyers are motivated to buy HUD homes because they are listed at or below market value and it offers them the opportunity to purchase a home than they might not normally be able to purchase.
HUD does not provide home loans directly to buyers; you need to negotiate your loan with a lender or bank of your choice. Buyers must have a letter of pre-approval from a mortgage lender or cash with proof of funds.
The agent will be notified within 48 hours of an accepted bid. The settlement or escrow stage is usually completed within one to two months, during which time financing is arranged and the sale is closed. As in the case of a normal real estate transaction, if you do not close by the settlement date, your earnest money deposit is forfeited or you will have to pay a per Diem fee until the close of the sale.
The Federal Housing Administration does not guarantee the condition of its properties and will not pay for the correction of defects. Because the new owner will be responsible for making needed repairs, HUD strongly urges every potential home buyer to get a professional inspection prior to submitting an offer.
The U.S. Department of Housing & Urban Development
Also known as HUD, the U.S. Department of Housing and Urban Development was established in 1965 to develop national policies and programs to address housing needs in the U.S. One of HUD’s primary missions is to create a suitable living environment for all Americans by developing and improving the country’s communities and enforcing fair housing laws.
Shaun L. S. Donovan (born January 24, 1966) is the United States Secretary of Housing and Urban Development, serving in the cabinet of President Barack Obama. Prior to this he headed the New York City Department of Housing Preservation and Development. On December 13, 2008, in his weekly national radio address, President-elect Barack Obama announced that he would appoint Donovan to his cabinet. He was confirmed by the U.S. Senate through unanimous consent on January 22, 2009 and sworn-in on January 26th.
How does HUD help homebuyers and homeowners?
HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower- and moderate-income families through its FHA mortgage insurance program and its HUD Homes program. HUD owns homes in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, Fair Housing Laws, and housing rehabilitation initiatives.
What Is HUD’s Mission?
According to their website, HUD’s mission is “to create strong, sustainable, inclusive communities and quality affordable homes for all.” Their emphasis is on providing quality and affordable housing for all that is free from discrimination.
So What Does HUD Do?
HUD influences nearly all aspects of housing in the US. They are part Insurers, funders and regulators. One of their roles is to insure mortgages issued by other lending institutions. They also regulate Fair Housing, Health & Hazards. HUD provides financial assistance to communities through Grants and funds Mortgage Backed Securities through Ginnie Mae.
What Are the Major Program Offices of HUD?
1. Community Planning and Development
- Provide grants to communities for economic development and neighborhood revitalization
- Provides grants to communities for housing and rental assistance for the homeless, disabled and those with HIV/AIDS
- Provides grants to state governments to implement plans to increase home ownership and affordable housing for low income residents (HOME).
- Provides grants to assist properties with environmental contamination (BEDI).
- And offers tax incentives to businesses to hire workers from, areas of high poverty.
The main purpose is to watch over the Federal Housing Administration (FHA), which is responsible for insuring mortgages. The Office of Housing operates in three main sectors:
- Single Family Housing:
- Insures mortgage loans for low income families and victims of disaster.
- Insures loans for manufactured homes, property improvements and property rehabilitations.
- Sells HUD foreclosures to eligible buyers.
- Helps buyers avoid foreclosure through loss mitigation (mortgage modification, partial claim).
- Assists the elderly (over 62) with reverse mortgages (allows them to turn equity in their homes into a monthly income stream or a line of credit).
- Allows law enforcement officers, firefighters, emergency medical technicians and teachers to purchase homes located in HUD revitalized areas at great discount, usually 50% from the list price (Good Neighbor Next Door).
- Provides counseling for buyers, sellers and tenants.
- Multifamily Housing:
- Shares the risk and insurance premium on multi-families with Fannie Mae and Freddie Mac.
- Sells multifamily foreclosures to eligible buyers.
- Provides grants to housing developments that provide housing for low income elderly and the disabled.
- Grants for emergency repairs on multi-family properties with elderly tenants.
- Insures mortgage loans for manufactured home parks, to finance cooperative housing projects and for housing and housing repairs in urban renewal designated areas.
- Mortgage insurance for construction or rehabilitation of multi-families for moderate income families.
- Loan insurance for healthcare facilities.
- Regulatory Programs:
- Establishes standards for manufactured home construction and safety.
3. Public and Indian Housing
- Provides annual funds to the Public Housing Authority’s (PHA’s) to be used for management and operations.
- Provides rental assistance for very low income families to choose their housing and for families who live in specific housing developments (Housing Choice (Section 8), and Project Based Voucher Programs).
- Helps Section 8 and low income families buy homes of their choice and public housing homes (Section 8 Voucher Assistance, and Public Housing Homeownership).
- Aims to transform neighborhoods of extreme poverty and eradicate severely distressed public housing (HOPE VI, Choice Neighborhood Program).
- Provides resources to help individuals become self-sufficient, including education, job training, and counseling (ROSS).
- Issues block grants and provides housing assistance to develop Indian tribal, native Alaskan and Native Hawaiians communities.
- Enforces the Fair Housing Act, which prohibits discrimination in any housing related activities (buying, selling, renting, obtaining mortgages).
- Provides funding to states to enforce their local fair housing laws.
- States everyone has an equal opportunity to benefit from HUD programs.
5. Policy Development and Research (PD&R)
- Analyzes current HUD policies and current housing market conditions to determine what policies are working, what areas need improvement and what the current housing needs are in the country.
- Their research directly influences HUD’s strategic plan (including their budget and legislative proposals).
- Ginnie Mae works with issuers and investors of mortgage-backed securities (MBS).
- Banks or other institutions pool their government insured mortgages (FHA or otherwise) and sell them as a bond to investors, usually institutions, who package them in a mutual fund. Ginnie Mae insures these bonds for a fee.
- Even if a bank or borrower defaults on the loan, the investors would still be guaranteed their money because Ginnie Mae MBS’s are the only securities that have the “full faith and credit guarantee of the U.S. Government”.
7. Healthy Homes and Lead Hazard Control
- Eliminates lead based paint hazards in American housing.
- Provides grants to state and local governments to develop programs to reduce lead and other health hazards.
- Enforces lead based paint disclosure regulations for rental or sale of homes built before 1978.
8. Office of Sustainable Communities
- Their goal is to locate affordable housing near job centers and accessible transportation and to lower energy costs. They aim to do this by integrated community planning in transportation, energy, and land use.
- It is broken down into the Sustainable Communities Initiative and the Energy Innovation Fund.