Define a HUD Home
The Federal Housing Administration (FHA) is an agency contained within the Department of Housing and Urban Development (HUD). The FHA insures mortgage loans. Properties secured with an FHA loan often end up under HUD control. When this happens, HUD provides the opportunity for individuals, local governments and non-profit organizations to purchase the dwellings, often at a considerable discount.
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Definition
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A HUD home results from a default on an FHA-insured loan. When a borrower does not live up to his FHA mortgage obligation, HUD forecloses, takes ownership of the property and sells it to recoup the agency's losses. As the HUD homes website explains, HUD homes are one- to four-unit dwellings that anyone can purchase; however, HUD dictates how the bidding process works, including who can bid and when.
Function
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HUD uses HUD homes to serve several purposes. Initially, HUD looks to get back some of the money it paid to lenders who approved FHA loans that ended in default. Other components of the program seek to address larger issues. HUD offers incentives to private individuals and local governments to promote community revitalization and low- to moderate-income home ownership.
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Time Frame
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Initially, HUD offers the homes to individuals who intend to live in them. When this initial offer period expires, HUD lets anyone, including investors, bid. If a HUD Home remains unsold after 60 days, it enters HUD's bulk sales program. Local governments get a 10 percent discount on HUD homes when they purchase 10 or more. If a HUD home is valued at less than $20,000, local government agencies can buy them for $100. When a HUD home sees no sales activity after 180 days, local governments can obtain it for just $1, plus closing costs.
Programs
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Individuals can also receive deep discounts on HUD homes. Firefighters, EMTs, police officers and teachers are eligible for 50 percent discounts on HUD homes located in HUD-characterized community revitalization areas. When a qualifying individual purchases a HUD home through the agency's Good Neighbor Next Door program, he must agree to live in the property, as his only residence, for three years. If the three-year criterion is not met, the buyer must pay the original discount HUD offered.
When local governments purchase HUD Homes, they often funnel them into their own subsidized or low-income housing programs. This is often done in conjunction with nonprofit organizations, who are also eligible to register with HUD to purchase HUD homes at a discount for community rehabilitation.
Considerations
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HUD advises anyone who buys a HUD to get a home inspection. HUD explains that it is not responsible for repairs, maintenance or defects on HUD homes before, during or after the sales. HUD suggests scheduling this inspection prior to making an offer.
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