The U.S. Department of Housing and Urban Development (HUD) provides mortgage financing for low-income Americans to help them become homeowners.
This can be a great way for first-time home buyers as well as for people who are looking to upgrade from their current rental home and get into the market without having a large amount of cash upfront.
However, it’s also a little difficult for non-homeowners to understand, and that’s before you take into account all of the paperwork that comes with it.
If you have no experience with buying or owning a home, then this article is going to serve as your guide through everything you need to know about purchasing a HUD home.
How to Purchase a HUD Home: The Basics
Before you begin looking at properties to purchase as a HUD home buyer, you’ll want to do a little research to make sure that you’re on the right track.
Since HUD homes are meant to assist low-income people to purchase a home, you’ll want to look into whether there’s an area where you’d feel comfortable living.
You should also look into the cost of living in the area as well as local schools and transportation options. If you’re looking to purchase a new home, you’ll also want to look at the resale value of the home that you’re interested in.
Researching your options can go a long way toward ensuring that you make the right purchase for your situation.
Who can purchase a HUD Home?
There are two main types of people who can purchase a HUD home: buyers who are looking to buy a new home, and existing homeowners who want to refinance into a new mortgage. The person who purchases a new HUD home is known as the obligor on the mortgage, and the other party is the holder.
If you want to purchase a HUD home, you’ll need to be an individual who is at least 18 years of age. You can also be a family member including a spouse, child, parent, or sibling. The main requirement is that you, the buyer, don’t have the ability to pay cash for the home.
What is a Direct Loan?
The first thing you’ll need to understand about a HUD home is the difference between a direct loan and advantage plus loan. A direct loan is given by the government to finance the purchase of a home.
The mortgage holder then assumes the responsibility of making the monthly payments to the bank. There are no extra points added to the interest rate, and you won’t be required to make mortgage insurance. An advantage plus loan is a combination of a direct loan and an investor loan from the Department of Housing and Urban Development (HUD).
This loan combines the best features of both types of loans: no mortgage insurance, no points, and no down payment. However, these loans are only available to exist to homeowners, who want to refinance into a lower-interest-rate loan, or who want to take advantage of the low-interest rates and allow someone else to purchase the loan.
How to Apply for a HUD Loan
The first step to purchasing a HUD home is applying for a loan. While you can apply online, it’s typically better to work with a mortgage broker. Brokers have access to more loans and have more experience than a typical home buyer.
What type of loan should you apply for? The answer is a bit complicated, but the general idea is to look at your ability to make the monthly payments on the loan. The most common types of loans that are used to purchase a HUD home are the following:
- A fixed-rate loan is one where the interest rate stays the same throughout the loan. A fixed-rate loan would be a good choice if you have a steady income, don’t expect to make large changes in your employment, and want a certain amount of security in the loan amount.
- A conforming loan is a loan that comes with a minimum limit on the amount you can borrow and the rates that you can be charged. This has three main benefits for the borrower: it eliminates the risk of taking on too much debt, eliminates the risk of excessive rate increases, and eliminates the risk of missing payments.
- A well-qualified loan is a loan that you are considered well-qualified for based on your income, assets, and other factors.
- An expanded well-qualified loan allows you to borrow more than the limits imposed by the government. This would be a good choice if you expect to make large monthly payments, have a high income, or expect to make large purchases in the future.
What is an Advantage Plus Loan?
An advantage plus loan is a combination of an existing home loan and a traditional HUD loan. Since lenders are required to offer this option, it’s likely that your lender offers it. You will be required to have a 20% down payment on the property. The lender will then make the loan with the advantage plus the loan.
This will result in lower monthly payments and the same amount of money being sent to the government each month. You will have to pay off your existing loan before the advantage plus loan comes due.
This loan is best for people who expect to make large monthly payments, want to pay off an existing loan quickly, or have a large amount of debt. It’s also good if you’re looking to buy a new home that has a large price tag.
How to Safely Purchase a HUD Home
Buying a new home is a major step, and it can be tempting to go overboard. There are a few things that you can do to make sure that the home that you purchase is safe and sound.
You should make sure that the home has a current safety inspection, and that it meets current building codes. Additionally, you should make sure that the home has adequate foundations and a sound roof.
Is Buying a HUD Home for You?
Buying a home can be a great way to establish your credit and become an owner. However, it can also be a very difficult and expensive process. You need to consider whether or not the process is right for you, and whether or not the amount of effort that you’re willing to put in is worth it.
Buying a HUD home can be a great way to get into the market without a large amount of cash, but it’s also a little difficult for people who are coming from outside of the home-owning world. The process of buying a new home can be difficult, and you have to be prepared for a lot of paperwork.
There are plenty of pitfalls that you can fall into when you’re trying to buy an old house. The best way to avoid them is to approach the process with a plan in mind and a budget to follow it.
