HUD Homes and FHA Loans: Buying With a Low Down Payment
HUD homes are properties the U.S. Department of Housing and Urban Development took back after an FHA-insured loan went into foreclosure. Some of them can be bought with an FHA loan and a very small down payment. Here is how the listings, the bidding and the financing usually fit together.
What a HUD home is
When a homeowner with an FHA-insured mortgage defaults, HUD pays the lender's claim and takes ownership of the house. HUD then sells these homes through a listing site and approved local real estate agents. Prices are set from an appraisal, and many homes are sold as-is.
The $100 down payment incentive
On selected listings HUD has offered an incentive that lets an owner-occupant buyer put down as little as $100 with an FHA loan. Whether a listing qualifies is shown on the listing itself, and the offer can change, so it is worth confirming with the listing agent before making a bid.
Owner-occupant priority
Most HUD homes are first offered only to people who will live in the house. During this priority period investors cannot bid. Buyers usually certify that they will occupy the home as their primary residence for at least a year.
How bidding works
Offers are submitted online through a HUD-registered real estate agent, not directly by the buyer. Bids are reviewed after the bid period closes, and the highest acceptable net offer is usually selected. The agent can explain deadlines and paperwork.
FHA loan basics
An FHA loan is a mortgage insured by the Federal Housing Administration. Lenders look at credit history, income and debts. FHA loans carry mortgage insurance premiums, which add to the monthly payment, so it helps to ask a lender for a full cost estimate.
Inspections and repairs
Because HUD homes are sold as-is, an independent inspection is strongly recommended. Some homes are eligible for FHA 203(k) financing, which can roll the cost of repairs into the loan.
Next steps
Search current listings in your area, talk to a HUD-registered agent, and get pre-approved with an FHA lender so you know your budget before the bid period opens.