HUD homes are those that once had FHA financing on them, but the borrowers defaulted. The home is now in the possession of the FHA. The last thing they want is an inventory of homes. The FHA lists the home for sale in the hopes that someone will buy it.
Usually, you can buy a HUD home for much less than it is worth. But, most programs still require a down payment. FHA loans, for example, require 3.5% down. Even a $50,000 home requires $1,750 down. If you don’t have the money, there’s a simple way to get around it.
Gift Money for a HUD Home Purchase
The FHA allows borrowers to secure a gift for their down payment needs. In this case, it may not be much. There’s usually a significant difference between a home for sale for the full value and a foreclosed home for sale.
In order to close on the loan, you’ll need money to put down, but the FHA doesn’t require the funds to come from you. If you have friends or family who can give you the funds, you may qualify. Keep in mind, this can’t be a loan. The person gifting the money must go through the proper channels to prove that it’s a gift and not a loan.
If the money is a loan, the lender would have to use the payment in your debt ratio. Securing a gift letter from the donor can prevent this from occurring. The donor must state that it is 100% a gift and they don’t require repayment.
Passing the Appraisal on a HUD Home
Once you secure the down payment and are awarded the bid on the home, you must qualify for FHA financing. The hardest part here is likely the appraisal on the property. Once you sign a contract, you are able to see the inside of the HUD home. This gives you a chance to see everything that is wrong with it.
The appraisal on the property must prove that the home is livable. FHA loans are only for owner occupied properties. HUD also gives owner occupied bidders first dibs on HUD homes. Because it will be owner occupied, it must be livable right away. The FHA appraiser has a list he must check off to make sure the home is safe for you to live in.
As long as the appraiser deems the property safe as far as FHA standards, you’ll be able to use FHA financing.
HUD homes can be a great bargain if you are willing to buy a fixer-upper. Of course, in order to get FHA financing, the HUD home must be in decent condition. Not every person that defaults on their loan takes their frustrations out on the home. There are some decent foreclosed homes available throughout the country.
Before you buy a HUD home, though, make sure you do your homework. Look at the area and the values of the homes. This will help you determine if you can fix the home up and make some money out of it. Either way, you can get the home for no money down. It’s just a matter of the type of home you wish to buy.