Learn About HUD Housing & Different Types of Home Loans

HUD homes are managed by the U.S. Department of Housing and Urban Development (HUD). They are typically residential properties that have one to four units for families and individuals.

In general, these homes are sold at lower rates, which gives low-income families a chance at home ownership and helps revitalize struggling communities. It is important to remember that HUD homes are available to all buyers who are interested in owning property and have the means to pay a mortgage. However, applicants with bad credit are not immediately out of the running because they may apply for loan assistance through other government programs.

What is a HUD home and who qualifies?

A HUD home is a home that was insured by the Federal Housing Administration (FHA) and repossessed by HUD when the homeowners did not keep up with their mortgage payments. When this kind of foreclosure happens, HUD becomes the owner of the property and places it on the market. This helps to recover the money that was lost. All potential customers may apply to purchase the home, assuming they have enough cash or receive a loan. Initially, HUD homes are available only to customers who plan to use the homes as their primary residence. If no one purchases a home after a certain amount of time, it may be sold to investors and other buyers.

Learn About Buying a HUD Home

When buying a HUD home, it is important to remember that HUD does not offer financing directly. This means that you must supply a form of payment by using your own reserves or a third-party lender. If your credit score is too low to qualify for a mortgage from a private lender, however, you may be eligible for an FHA loan. The loan comes from an approved lender which the FHA insures, allowing you to borrow at a low interest rate with a small down payment. To find listings of HUD homes, visit the HUD home store website. Many homes are listed at sale prices in order to help communities and increase home ownership.

Learn About First-Time Home Buyer Programs

It may be difficult to find a first time home buyer loan that offers substantial discounts or perks, because lenders are taking a risk with customers that have never had mortgages before. Additionally, new homeowners face an uphill battle in learning how to find a good deal, how to negotiate a price and how to decipher mortgage terminology. For this reason, first time home buyer government programs may be helpful. Programs such as FHA, the U.S. Department of Agriculture (USDA), Good Neighbor Next Door and more offer excellent assistance and may insure your mortgage so that you become eligible for better interest rates.

Learn About Types of Home Loans

A HUD loan is a third-party loan that is insured by the FHA. Generally, these loans have lower down payments and closing costs and are easy to qualify for, as you only need a credit score of 580 or higher. Most other mortgage lenders require your score to be above 600. In addition, your down payment may be as low as 3.5 percent of the total mortgage. Approved FHA lenders offer these loans in exchange for the guarantee that the FHA will collect the property if you do not make your mortgage payments. You may opt for this type of loan if you struggle financially or have poor credit.

A housing loan that is not provided through the FHA usually has strict eligibility requirements. On the other hand, it may have substantial perks for customers with excellent credit scores. Some financing companies offer a 0 percent down payment and a cash reward at closing if an applicant has good credit. This may mean that he or she has a longer mortgage as well. Mortgages range from 10 years to 30 years depending on the cost of the house, interest and the size of monthly payments. In addition, applicants may choose between fixed interest rates and changing rates. Fixed rates make financial planning simple, while fluctuating rates are less expensive in the beginning.

A VA house loan is a loan through a private lender that gets partially insured by Veterans Affairs (VA). With a VA guarantee, borrowers may qualify for loans with better interest rates and down payments. To be eligible for a VA home loan, a veteran must have served in the military for a certain length of time and received an honorable discharge. The spouse or dependent of a veteran may also qualify if the veteran was on active duty. If an applicant is deemed eligible, the VA will mail him or her a certificate of eligibility (COE). The applicant may then use the COE to qualify for a loan through an approved third-party lender.

Besides HUD loans, there is a wide variety of government home loans, such as the cash-out refinance loan, direct home loans for Native Americans and home and property disaster loans. The cash-out refinance loan is a way of refinancing a standard loan into a VA loan. The VA may then guarantee some or all of the home’s value. Loans from the Native American Direct Loan (NADL) program allow eligible Native Americans to buy a home on federal trust land. NADL also allows qualified applicants to construct or improve homes or reduce their interest rates. Home and property disaster loans assist homeowners who live in declared disaster areas and need financial help.

Learn About Housing Grants

Housing grants are benefits transferred from the federal government to families that need help purchasing homes. They are the result of the HUD effort to offer equal housing opportunities to applicants with low incomes and help struggling neighborhoods, thereby stimulating the economy for the betterment of the public. The federal government funds these grants and lists them on its grants website. In addition, the HUD lists its own funding opportunities and available programs, such as the Affordable Housing Development and Preservation program. Each year, a Notice of Funding Availability (NOFA) is published that details the available HUD discretionary funding programs and how to apply for them.

Learn About Rent-to-Own Homes

Rent to own homes may be a viable option if you want to ease your way into buying a house. Most rent-to-own agreements involve renting a house for a certain number of months or years before you have the option to buy it. A portion of your monthly rent usually goes toward your future down payment. If you opt for this deal, it is very important to carefully read the contract. For instance, a lease option agreement is much safer than a lease purchase, because it gives you the option of backing out of the home purchase at the end of your contract. It is also good practice to check that the seller owns the property and has paid taxes on it.