Questions to Ask When Buying a HUD Home
An arm of the U.S. Department of Housing and Urban Development, the Federal Housing Administration insures mortgage loans. When a borrower defaults on an FHA product, HUD pays the lender the balance left on the homeowner's loan and forecloses on the underlying property. Shortly thereafter, HUD gives the general public the opportunity to bid on these dwellings known as HUD Homes.
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How Am I Paying For This?
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You pay for a HUD Home the same way you do any other property---with cash or financing. Ensure that you have your approach lined up in advance. HUD suggests the possibility of securing a loan through an FHA lender in your area. Not only can you finance the purchase price with an FHA product, but you might qualify for an FHA rehabilitation loan that covers the costs of repairs you need to make on your new HUD Home.
Do I Qualify For a Discount?
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If you are a teacher, EMT, firefighter or police officer, ask your real estate broker if you qualify for HUD's Good Neighbor Next Door program. Through this initiative, HUD offers HUD Homes located in FHA Community Revitalization Areas to individuals from the above-mentioned group at a 50 percent discount. All you have to do is live in the home for three years as your primary residence.
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Is This Home in a Good Neighborhood?
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HUD and the FHA designate Revitalization Areas on the basis of household income, homeownership rates and the number of FHA-associated foreclosures that occur in the neighborhood. While this does not necessarily guarantee that HUD Homes in these communities or the communities themselves will be sub-par, be sure to take a look around. If foreclosure activity is high in the neighborhood, you might wind up in a ghost town full of boarded-up properties and overgrown lawns. Make sure the homes around the one you want to buy are occupied or on the move as well.
Should I Get an Inspection?
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Not all HUD Homes require repairs, however, given the nature of foreclosures, many do. HUD clearly states that it assumes no responsibility for damage to a HUD Home before, during or after the sales processes. It encourages prospective buyers to get their own inspection before placing a bid on a HUD Home.
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