HUD loans for foreclosed homes

The U.S. Department of Housing and Urban Development (HUD) is the cabinet-level government agency charged with expanding the availability of quality affordable and public housing in the U.S. It’s roots were first established in the Depressions-era changes made to provide housing to many families driven out of their homes as a result of the economic collapse. These days, HUD finds itself not only administering numerous programs aimed at improving communities and expanding the available housing stock, but it also is charged with managing the sale of an explosion of properties it is now responsible for in the aftermath of the housing collapse of 2007 – 2009. If you’re in the market for a very affordable home you can find some phenomenal deals plowing through the local inventory of HUD properties. While (strictly speaking) HUD does not offer loans to potential homebuyers, you can get loans backed by one of HUD’s most important agencies, the Federal Housing Administration (FHA).

HUD/FHA Loans, what’s available?

The FHA actually precedes HUD by decades. FHA was created as part of the National Housing Act of 1934, which was passed to relieve unemployment and stimulate the release of private credit in the hands of banks and lending institutions for home repairs and construction. Along with creating FHA, the Act also established two basic mortgage insurance programs for FHA to manage and secure: Section 203 mortgage insurance for one to four family homes/units; and Section 207 multifamily project mortgages. The FHA’s assumption of risk, through its insurance programs, made possible the amortization of mortgage loans with regular monthly payments to reduce the size of loan. It’s shocking to imagine that before the creation of FHA and the moves made under the passage of the Act, it was virtually impossible for a family or potential homeowner to acquire a 30-year or even 15-year mortgage. Standard home “loans” were about five years in length and the cash and down payment requirements made private homeownership unreachable for most.

Today, FHA offers securitization for several loan programs. You can find private lenders and mortgagees offering FHA-backed loans for:

• First-time homebuyers
• Qualified “fixer-uppers”
• Housing for seniors
• Residential energy efficiency upgrades
• Manufactured and mobile homes

If you’re in the market for a HUD-owned foreclosure property, you may also have access to some community-based FHA-backed lending programs that can assist you.

Click here to get foreclosure listings now.

Advantages of HUD/FHA loans

Once you’ve found a HUD home you are interested in, your first (and perhaps smartest) step would be to review which FHA-backed loan program might best suit your situation. You can get an FHA-backed loan for a HUD foreclosed home through a bank, credit union or any other HUD-approved mortgage lender. FHA insures the home loans to reduce the risk to the lenders and as a result, FHA loans tend to offer lower interest rates and less strict credit requirements than traditional mortgage programs. If you cannot get approved for a mortgage through a traditional lender because of your credit history, employment history, money available for a down payment, or other mitigating circumstances, you may be able to get an FHA loan.

A traditional mortgage lender may require that you come up with at least 20 percent of the purchase price of the home as a down payment. Many FHA-backed loans only require that you come up with 3.5 percent as a down payment. This can provide substantial relief in your financing. It’s difficult for many people to save that much cash. In many cases, potential homeowners find themselves compounding their borrowing burden by getting a smaller, short-term loan for a down payment, hoping they can roll that loan into some creative refinancing later.

Consider the savings these low-down FHA loans can provide. If you find a $150,000 home you like (and qualify for financing of) having to put 20 percent down would require cash reserves of $30,000. With a low-down FHA loan requiring just 3.5 percent, you only need $5,250 for the same house. You can get FHA loans for foreclosed homes as well as for homes in traditional sales. HUD has thousands of foreclosures for sale because when a homeowner defaults on a home with an FHA mortgage, the government pays the lender for the loss and resells the house. You can purchase a foreclosed property with up to four units. (This guide explains more about buying homes HUD has for sale and the available financing.)

Resources in your area

Any single family property acquired by HUD (either through foreclosure or in some other fashion) will have a display sign clearly indicating it is a HUD-home and that FHA is working to offer loans for purchase. These signs clearly identify who is managing the property before it is listed for sale. During this time the property is appraised, title issues are resolved (if necessary) and a determination is made about the property's eligibility for HUD's discount sales programs. Property listings are posted on HUD Home Store, which is broken down by state (and in some cases, state listings are broken down by zip code.) For more information, contact the Management and Marketing Contractor serving your area.

If you have more questions about the sale and purchase of FHA-insured homes, you can contact the Management and Marketing Contractor that manages the FHA housing portfolio in your community. You may also log onto the FHA Resource Center for more information about FHA and its various programs.

HUD-owned foreclosed homes located in designated Revitalization Areas are available at a reduced sales price to law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments through what HUD classifies as its Good Neighbor Initiative. You can also view maps of REO properties and special programs such as Revitalization Areas with HUD's Single Family Home Locator.

If you are just beginning to shop for your new home, Reply! can be a great resource for you. To start, you can get real estate listings, including foreclosed homes and other properties, here.