If you wish to purchase affordable housing, HUD homes are a great place to start. These homes, which were once financed with FHA loans, went through the foreclosure process and HUD now owns them. Because HUD wants to get the homes off of their hands, they sell the homes for a much lower price than they would typically sell for in the regular market. If you are lucky enough to purchase a HUD home, you must know the requirements to sell a HUD home after buying it.
As a part of the process of purchasing a HUD home, you have to agree to a specific occupancy period. That period is 12 months. This means that you must live in the property for that length of time before you attempt to sell it or even move out of it. In order to ensure that you are going to live in the property, HUD determines that you have not purchased another HUD home within the last 24 months as a part of their requirements.
Because HUD prefers to sell its homes to people that will occupy the property, they tend to give these buyers a few incentives. Some of the incentives you might see include:
- Closing cost assistance
- Alternative financing options in order to have money to fix the home up ( FHA 203K)
- Lower down payment requirements
- The first opportunity to purchase the home
Generally, HUD opens up the bidding for HUD homes to owner occupied buyers. The period of time differs for each property, but it generally ranges between 2 weeks and 30 days. If during that time, the home does not sell, then HUD will open it up to investors.
Penalties for Selling a HUD Home After Buying
Many people think that after they sign the closing documents, including the mortgage, note, and intent to occupy the property document that they can move whenever they want. While HUD might not notice right away that the property was sold earlier than allowed, if they do find out eventually, you could be in serious trouble. It is considered fraud if you sell the home prior to the 12-month requirement. This could lead you to financial penalties as well as prevention from using any government programs in the future.
Exceptions to the Rule
Just as is the case with most other programs, you can get an exception to the rule if you need to sell a HUD home after buying less than 12 months ago. You should have extenuating circumstances if you wish to have an exception granted to you, however. A few examples include a job relocation that is too far to commute or a serious family emergency that requires you to be away from the home. The HUD lender you used for financing will determine if your circumstances warrant early sale of the HUD home. The lender might be able to modify the contract or execute a loan modification to enable you to get out of the contract without penalty.
Reasons for the Occupancy Requirements
It might seem silly to have owner occupancy requirements on a home that you took off of HUD’s hands, but the premise behind the program goes along with their mission. HUD was established to help low-income families be able to afford a home. If they provided HUD homes, which sell at a discount, to people that could otherwise afford other housing and that are just going to turn around and sell the home for a profit, their mission would be null and void. The penalties are severe for violating the one-year requirement including very serious fines and even jail time in some situations, depending on the level of fraud that was completed.
If you plan to purchase a foreclosed FHA loan home, make sure you can live there for at least one year. If you plan to sell a HUD home after buying it, consider waiting until the investor bid period opens up. This usually occurs once the home is up for sale for a specific period of time and goes unsold. At that point, HUD wants to get rid of the home, so they will sell it to investors, but they do their best to sell it to people that would live in the home first in order to stay true to their program.