As HUD describes at the HUD Homes site, practically”anyone” can purchase a HUD home. The procedure bears a strong resemblance to a traditional real estate transaction. When a person creates a bid on a HUD house, he could use cash or a mortgage loan, including an FHA merchandise.
HUD houses contain four or fewer units. They enter the marketplace after a borrower defaults on an FHA loan. While this happens, HUD, the FHA’s parent agency, forecloses on the property and pays the creditor who approved the loan that the delinquent balance on the homeowner’s mortgage. HUD proceeds to sell the house to make back the money it invested making good on the government’s FHA mortgage assurance.
When a HUD house first hits the market, only individuals who wish to make the property their sole house can bid on it. Prospective homeowners may pay money or secure financing to make the purchase. One kind of financing is the FHA-insured loan. As noted, the federal government insures FHA mortgages. It does this by collecting mortgage insurance premiums paid by FHA loan holders. This money sits in a finance which HUD taps when a loan goes south.
After the initial offer period, HUD opens the bidding on HUD houses to all parties, including investors. Following 60 days without a sales action, local authorities can purchase HUD homes in bulk at a discount. When a HUD house remains unsold after 180 days, HUD further lessens the cost for local authorities to as low as $1. Throughout this whole cycle, individuals can purchase a HUD home using an FHA loan or other kind of financing.
HUD warns prospective buyers to schedule a professional inspection on a HUD house prior to making a bid. While not all HUD homes need extensive repairs, some do. HUD sells these possessions”as is” and requires no responsibility for rehabilitation. HUD does suggest, however, that potential employers investigate an FHA 203(k) rehabilitation loan. As HUD explains, normally when a buyer should rehab a house, she needs two loans: one to finance the actual purchase and you to conduct the repairs. The FHA 203(k) product allows borrowers to take out one loan for the two purposes.
Traditionally, borrowers with very little money up front or less than perfect credit have sought FHA loans. While FHA loans may be less difficult to come by, they are hardly a sure bet. HUD data indicates that the average FICO credit score for approved FHA borrowers in August 2010 was 697. This is unchanged from July 2010 and August 2009. To qualify for the FHA’s 3.5 percent down payment program, borrowers must have a FICO credit score of at least 580. People who don’t, if approved, should put down at least 10 percent, even on a HUD house.