THE HUD HOME BUYING GUIDE
YOUR DREAM HOME COULD BE A
OWNING A HOME OF YOUR OWN.
everybody has a dream home. A place they like to wander through in
their thoughts, choosing imaginary wallpaper and putting in
imaginary skylights. But for too many people, dream homes remain
just that–dreams. The reality of owning their own home never seems
to become theirs.
That’s where the
United States Department of Housing and Urban Development (HUD)
comes into the picture. HUD is a government agency created to help
make the American dream of homeownership a real possibility for
Since 1934, HUD’s Federal Housing Administration
(FHA) has helped millions of Americans unlock the door to
homeownership and have a home of their own. We do it by making home
buying easier and more affordable. One way we can do this is by
selling homes HUD owns in many communities throughout the U.S., at
attractive prices and economical terms.
So that home you’ve been dreaming about just may
be one you buy from HUD. But whether you decide on a HUD Home or
not, you can use this guide to take you step by step through each
stage of finding and buying your own home.
HOW MUCH HOME CAN YOU AFFORD?
you start shopping for a home, you need to know what kind of home to
shop for. To determine that, of course, you’ve got to figure out how
much you can afford to pay each month.
Fortunately, there’s a pretty simple formula for
coming up with this number. It’s the FHA formula that many mortgage
lenders use. The FHA has found that most people can afford to budget
29 percent of their gross monthly income to housing expenses,
depending on total debt. Buyers with no debt can budget as much as
41 percent of monthly income to housing.
No need to reach for your calculator–we’ve done
the math for you. The two charts on the opposite page should tell
you everything you need to know.
The first chart tells you how much 29 percent of
your monthly income is. Find your annual income, or a figure close
to it, in the column at the left. Then read across to find out how
much your monthly gross income is, and finally, what 29 percent of
that figure amounts to. This is approximately how much you can spend
on total housing costs each month.
The second chart tells you how much your monthly
mortgage might be based on a home’s selling price. Remember to keep
in mind that the monthly figure from this second chart is based on a
30-year fixed mortgage and includes monthly principal and interest
payments only. Taxes and insurance – which vary from community to
community – are not included.
So if 29 percent of your gross income is, say,
$604, that doesn’t mean you can pay a $604-per-month mortgage. You
need to look at a mortgage somewhat below that, to leave room for
taxes and insurance. Be sure to ask your lender to help you estimate
how much your total costs will be.
29% of Gross
Monthly principal, interest payments for 30-year, fixed rate
mortgage. Monthly taxes, insurance not included.
IT'S TIME TO STOP TALKING
AND BEGIN DOING SOMETHING ABOUT IT.
HELP IS AVAILABLE.
will have lots of questions and countless issues to consider when
you buy a home. You'll need someone that can help you through the
process. A good real estate agent is a good place to start.
The quality of local schools, neighborhood safety,
the number of children in the area, and traffic patterns are just a
few of the issues to be considered in shopping for the right home. A
real estate professional can be helpful in guiding you to the right
source for facts and useful information.
And all the financial details that can seem so
mind-boggling to first-time home buyers are something the agent
deals with every day. He or she will help you figure the price range
you can afford, explain the different types of mortgages, guide you
through the paperwork, and be there to answer last-minute questions
when you sign the final papers at closing.
If you're buying a HUD Home, you're required to
use a real estate agent. While purchasing a HUD Home may be easier
than many private real estate transactions, there are still some
requirements which must be met–certain forms that must be used, and
procedures that must be followed. But these requirements are clearly
stated in advance, and the real estate agent will be there to help
you through it all.
There are no negotiations between buyer and seller
when you buy a HUD Home. This can be a real advantage. There's no
haggling about price–everything is spelled out in black and white.
What's more, your offer is responded to promptly, and if it's
accepted, closing on the home usually will occur within 30-60 days.
Finding a HUD-approved selling broker is not
difficult, especially since so many real estate brokers are happy to
sell HUD Homes. All you need to do is to call a few brokers who work
in the area you're interested in and you'll find someone willing and
experienced. Some brokers specifically advertise their desire to
sell HUD Homes in the real estate sections of newspapers.
Best of all, the valuable help you'll receive from
the real estate agent is usually free! In most instances, agents get
their sales commission from the home seller, not you, the buyer.
Even if you're buying a HUD Home, HUD will pay the broker's
THERE'S A HUD HOME WITH YOUR NAME ON IT.
Out of all the homes for sale in your area, there
is likely to be one that has everything you want. The trick is
simply to find it.
Of course, your real estate agent can be a big
help. But even the agent will need to know what your priorities are.
Is a short commute important to you? Or are schools your biggest
concern? How many bedrooms do you think you need?
Before you begin looking at homes, try to decide
in advance exactly what you want. This can save you and the agent a
lot of time. It's a good idea to actually write down your wishes,
and share the list with your agent. This is helpful because he or
she will usually have lists of the properties for sale in your area,
including all the HUD Homes. HUD Homes are listed in the local
multiple listing service (MLS) and on the internet at
www.hud.gov A broker should
have all the information you need.
Almost any home you look at will have room for
improvement. But the more that needs to be done to a home, the less
you're going to have to pay for it. HUD Homes, because they're sold
in “as-is” condition, can often be a great, affordable opportunity
for the fixer-upper. Many are in fine neighborhoods and offer
outstanding values. And while some HUD Homes do qualify as “handyman
specials,” many are in very good condition.
HUD does not warrant the condition of its
properties, but will give you the information it has about the
condition of the property you're interested in. You can use this
information in formulating your bid.
There's even a HUD loan program available called
the 203(K), where buyers can borrow money to make repairs on some
properties. You repay these funds later, as part of your mortgage.
Just be aware that 203(K) funds aren't available for all houses in
all areas. Ask the real estate agent you're working with about
203(K) availability in your area.
BEGINNING TO MAKE IT YOUR OWN.
you've found the home of your dreams, it's time to make an offer to
buy it. Before deciding how much to offer, HUD urges you to get a
professional home inspection. It can also be helpful to find out how
long the home has been on the market—if it's been for sale awhile,
the seller may be more willing to bargain.
After you and the agent have prepared your offer,
he or she will present it to the seller. It may be accepted or
rejected, or the seller may counter your offer by asking for a
higher price or by making changes in the sales contract.
Making an offer to buy a HUD Home is often much
easier than the process of buying a home on the private market. Your
bid will be submitted electronically through a computer, a touchtone
telephone or by real estate broker. The person making the highest
acceptable bid is generally awarded that HUD Home.
Offers for HUD Homes can only be made through a
licensed real estate broker. This way, HUD requirements are met and
buyers get the help they need. HUD will pay real estate commissions
if the commission amount is requested as part of the bid.
The initial listing price of each property is
HUD's estimate of current fair market value and is based upon an
appraisal conducted by an independent real estate appraiser. HUD may
accept an offer that is less than the listing price, depending on
market conditions and the length of time the property has been on
the market. In some instances, buyers will offer more than the
listing price if they believe the market conditions demand it or if
the home is particularly appealing. It is important for buyers to be
aware of the property values established by HUD and submit offers
will generally make your offer for a HUD Home during a designated
“Listing Period.” With the commencement of the Initial Listing
Period, bids may be submitted by all potential purchasers. However,
priority will be given to owner-occupant purchasers for the first 10
calendar days as follows: All owner-occupant offers received during
the first five days of this10 day period will be considered to have
been received simultaneously. On the first business day following
the expiration of the five day period, owner-occupant bids are
reviewed, at which point the highest acceptable net owner-occupant
will be accepted. Should there be no acceptable owner-occupant bids,
owner-occupant bids will be reviewed on a daily basis for the
remaining five days. At each such daily review, HUD will accept the
highest acceptable net owner-occupant bid. At the conclusion of the
10-day owner-occupant priority period, should the property remain
unsold, a review of all general public bids (e.g. investor) received
during the 10 day period will be conducted.
Earnest money. When you make an offer on a home,
the seller will usually require an “earnest money” deposit as proof
that your offer is serious. If the offer is accepted, your earnest
money deposit will become part of your down payment or closing
costs. If your offer is rejected, the broker will return your
earnest money to you.
YOU'RE ALMOST HOME.
DIFFERENT LOANS FOR DIFFERENT HOME BUYERS.
as there is more than one kind of home, there is more than one way
to finance it. Mortgage lenders have come up with many different
methods of helping you pay for a home – each one with its own
advantages and disadvantages.
First of all, you should know that HUD itself does
not provide financing. You obtain financing through a bank or
mortgage lender. Since many HUD Homes are eligible for FHA-insured
mortgage loans, this can make financing easier to obtain. However,
you are not required to get an FHA loan to buy a HUD Home.
Fixed-Rate Mortgage. With a fixed-rate mortgage,
your interest rate stays the same for the term of the mortgage,
which is usually 30 years. Your principal and interest payment
remains stable, making it easier to plan a monthly budget. However,
initial interest rates tend to be higher than with other types of
Adjustable-Rate Mortgage. With an ARM, your
interest rate and monthly payments start out lower than with a
fixed-rate, but your rate and payments can change either up or down,
depending on where interest rates in general are going. (If they're
going up, your monthly payments will probably go up as well,
FHA-Insured Mortgage. In this type of loan, the
Federal Government insures the lender against loss in case the home
buyer defaults on the loan. This program was set up so that
Americans who can't afford the 10 percent to 20 percent down payment
required by most lenders can still buy a home. Many HUD Homes can be
bought with FHA-insured mortgages, which allow you to purchase the
home with a low down payment. You do not have to be a first-time
buyer in order to qualify for an FHA loan.
VA Loan. Under this program, the Department of
Veterans Affairs guarantees the lender against loss. HUD Homes may
be purchased with a VA loan or any other loan.
Assumable or Non-Assumable. You may find a home
with a mortgage loan you can “assume” from the previous owner. This
means that the lender is willing to transfer the old loan on the
home to you. These loans can be wonderful bargains, and the
paperwork is usually not very complicated.
Before you decide which loan is right for you,
talk to your loan officer. You'll get information that will help you
figure out which option best suits your needs.
HUD BRINGS UP-FRONT COSTS DOWN.
The costs of buying a home are more than just the
price you agree to pay for it. Before you move in, you'll have to
pay various charges, which we explain below. The good news is, with
HUD Homes these costs may be lower than they are with other homes.
Most people know that a down payment is a
percentage of the price of the home that must be paid up front, in
cash. The typical down payment is three percent and family members
may give a gift to make up the balance of the down payment.
This term covers various fees your lender
charges for providing your loan, and other expenses. Closing costs
typically add up to about 3 percent or 4 percent of the price of
your home, depending on where you purchase it. But when you buy a
HUD Home, these costs may be picked up by HUD – if this incentive
is offered by HUD and if they are specifically requested, by
dollar amount, in the bid offering. If you buy a HUD Home, HUD may
pay many of your usual and customary closing expenses plus real
estate sales commissions. Just remember that closing costs and
sales commissions are deducted from the bid amount in making the
decision as to which offer brings the greatest return to HUD.
Since bidding is competitive, you may, in order to offer a more
competitive bid, pay your own closing costs. This makes HUD's net
return greater, making your bid more favorable and increasing the
likelihood that HUD will accept your offer.
CHECKING IT OUT BEFORE YOU CHECK IN.
you buy anything, you'll want to know exactly what it is you're
getting. With something as important as your home, you can't know
too much. That's why it's a good idea to get a professional
inspection of your home — even before you make the offer. HUD
strongly urges every home buyer to get a professional inspection,
whether you're buying a HUD Home or not. HUD Homes are sold in
“as-is” condition. That means you agree, if you buy the home, to
accept it in its present condition. HUD does not pay for the
correction of defects in existing homes that it sells or on homes
purchased with FHA-insured mortgages. The owner of the home will be
responsible for needed repairs. Therefore, be sure of the condition
of the home before you submit your offer.
THE FINISH LINE.
day you finally close on your new home will probably be one of the
most exciting in your life. Finally, the long, tedious process of
finding a home and getting a loan is over, and by the time the day
is done, you'll be the proud and happy owner of your new home.
Before that day ends, you will be asked to sign a
seemingly endless number of forms, but the closing agent will go
over each one with you. It's all necessary, but you can make it a
little easier by asking the real estate agent about it before the
big day comes. Also, when you apply for your loan, your lender is
required to give you a booklet explaining closing costs, an estimate
of how much cash you'll have to supply at the closing, and a list of
all the documents you'll need.
If you have any questions, perhaps they are answered in our
“FAQ” . If not, why not go
straight to the phone right now, and call us at 734-946-7141 and
ask about HUD Homes? It's a small, first step. But the journey could
eventually end at the door to a home you call your own.
Get Started Now!