Housing And Urban Development

If you’re starting out on your search for a home, you should know what The Department of Housing and Urban Development is. Also known as HUD, this government agency can save you thousands of dollars if you fit certain criteria.

In today’s article, we will dig into what exactly HUD is, where it came from, its initiatives, and how buying a HUD home can benefit homebuyers. Most importantly, we will discuss what HUD does for consumer protection of homeowners and prospective buyers.

What is The Department of Housing and Urban Development?

This department is most commonly referred to by the acronym HUD. It was established by President Lyndon B. Johnson in 1965, in an attempt to combat poverty.

The main goal of HUD is to ensure that all people in urban areas have the same access to housing that is quality, affordable, and inclusive. HUD strives to accomplish this through federal programs and policies.

Wondering who is in charge?

As a cabinet-level federal agency, the president appoints a Secretary to run HUD. The Secretary must get approval from the Senate before taking on the role. The HUD Secretary manages the federal programs which help with community development and aid citizens with rental assistance.

They also supervise the Federal Housing Administration.

As part of the public programs to aid in community development, HUD comes to the aid of those homebuyers who cannot qualify for conventional loans.

HUD helps these citizens get affordable mortgages, through the FHA. The FHA, or Federal Housing Administration, has a mortgage insurance program that home buyers with low income or bad credit can take advantage of. Through this program, these home buyers can qualify for FHA loans which are controlled by the government.

A family that bought a HUD home

Origins & History of HUD

HUD is just one part of ongoing efforts made by the US government to help homeowners, with a focus on making sure the playing field between those with low income and the rich is even.

In the 1930s, there were two housing acts (1934 & 1937) that stemmed from the prospect of better financial standing for American families as the effects of the Great Depression receded. These acts were meant to help relieve unemployment and stimulate the economy by pushing banks and lending institutions to release credit. The FHA was also formed in the 1930s.

In the 1940s, public housing initiatives began.

However, the focus on public housing and homeownership was soon lost. World War II began in 1939, with the US entering the way in 1941. The economic focus shifted to war efforts, and the FHA was prioritized for war housing.

Residential housing was put on hold. Finally, the war ended in 1945. After some recovery, we were able to focus on housing again. In the 1950s, Urban Renewal was expanded and urban planning grants were created. The government was able to refocus on fair housing for the people.

Finally, in the 1960s HUD was created. The Department of Housing and Urban Development Act of 1965 created a leased housing program. This made privately-owned housing available to families with low income, rather than pushing those families into public housing.

Since the 1960s, there have been tons more housing initiatives that are related to mortgages, rehab grants, public housing, and urban development. However, HUD has stood the test of time and is still relevant in today’s real estate market.

What is a HUD home?

HUD offers opportunities to folks who may otherwise not be able to purchase a home. Sometimes, those homeowners find themselves unable to make the monthly payments. In these instances, the FHA steps in and forecloses on the home. So, when you hear the term “HUD home,” it’s referring to a home that was purchased with an FHA loan, which has now been foreclosed upon by the FHA. They’ve stepped in, paid the remaining mortgage balance, and are now selling that same home.

You can often find HUD homes at a rate that is slightly lower than market value. The government prices them this way to encourage other home buyers to purchase quickly. The government wants to hold onto these properties for as little time as possible. HUD homes are appraised as any other home would be, to determine their true value – regardless of what price they’re sold at.

The homes are then sold “as-is,” which means no improvements or repairs will be made by the government before they’re sold. This is a key difference in this process compared to the typical home buying process, where you can negotiate repairs and price.

There are rules as to who can purchase a HUD home. If you’ve purchased a HUD home within the last 2 years, you are ineligible. Once you purchase a HUD home, you must live in it for at least 1 year before renting it out or selling it. Any home buyer who can afford the home, whether with their own funds or a loan, can purchase a HUD home.

Investors are also able to purchase these homes, but priority is given to people who want to purchase the home as their primary residence. For investors looking to rent or flip the house, this is bad news. If there are only investors interested in the property, they will then be able to purchase the HUD home.

HUD Initiatives – Why Buy a HUD Home?

HUD offers a few incentives and programs to encourage buyers to purchase these homes, other than the discounted rate. It doesn’t benefit the government to hold onto these homes, they are motivated to sell and want to get it off their hands as soon as they can. Since HUD was created to help low-income families find housing, these incentives are often aimed toward certain people. The incentives they offer include vouchers, grants, and buyer’s programs. These include:

  1. Good Neighbor Next Door Program – Public servants, like firefighters, police officers, emergency medical technicians, and teachers can take advantage of 50% off when purchasing homes that are located in revitalization areas.
  2. Housing Choice Voucher Program – Also known as Section 8, this program allows families with low income to afford homeownership. The program gives the family a recurring subsidy, which is used to assist them with their monthly mortgage payment.
  3. Non-Profit Program – This program gives religious and community non-profit organizations 30% off the purchase of HUD homes. The intention here is for these organizations to repair and improve the homes, then resell them to financially struggling families or first-time homeowners.
  4. HUD $100 Down Program – With this program, owner-occupant buyers are able to forgo the usual 3.5% requirement and put a payment of $100 down instead.
  5. One Dollar Program – Utilizing the One Dollar Program, low and moderate-income families can purchase a HUD home for just $1 down payment. The caveat is that the home must be on the market for at least 6 months before this becomes an option.

How to Buy a HUD Home

What scares most homebuyers away from purchasing these properties is the actual process of purchasing a HUD home. The process looks different than buying a traditional home. If you understand the process and can weather through it, you can save some serious money.

Here’s what you need to know

Where to Find Them: HUD homes are listed only on HUD’s website: HudHomeStore.com. Though you typically find traditional homes on the Multiple Listing Service, that isn’t the case with HUD homes.

Auction Sales: Rather than being placed on the market like normal homes, HUD homes are sold only at auction. During a 30 day period, HUD collects offers from all buyers and reviews all bids after the auction period has ended. They will then choose the highest offer.

If it’s decided that none of the offers are high enough, they open the auction up to investors. In order to participate, you must get a HUD-approved real estate agent. If you’re the lucky winning bidder, HUD will give your real estate agent a settlement date. Buyers usually have 30 to 60 days to close.

Home Financing: The same financing options apply to buying a HUD home as those available to traditional home buyers. All buyers may choose to purchase a HUD home with a conventional loan. Low-income and low credit score buyers can purchase using an FHA loan.

There is also the FHA 203(k) loans, which enable borrowers to get the money needed to purchase and repair a HUD home. This is important, as many HUD homes need repairs and rehabilitation. Alternatively, current service members and qualified veterans can purchase a HUD home using a VA loan.

As-Is Sale: It is critical to get an inspection before purchasing a HUD home. Since they are exclusively sold “as-is,” you’ll need an inspector to tell you what you can expect to repair and replace should you buy the property. The home inspection is not required for the sale, but it’s important that you know what condition the home is in so you know if it’s a worthy investment.

How HUD Helps Consumers

There are several benefits to buying a HUD home, and thus, how HUD helps consumers. Since they’re a government agency that was formed to help make housing more accessible to lower-income families, FHA loans are one of the primary ways they help people. Conversely, buying a

HUD home is not limited to low-income or low credit score buyers – so anyone can take advantage of the deals offered. If you’re in the market to purchase a home but have a smaller budget, you can take advantage of buying a HUD home.

Unlike other foreclosures, buyers looking to purchase a HUD home don’t have to contend with investors. Since HUD homes limit their primary 30-day auction window to buyers who are looking for a primary residence, you can get a leg up on investors. Just make sure when you make an offer, it is reasonable so that it will be deemed as high enough by HUD. If not, you risk losing to other buyers or opening the sale up to investors.

With the programs described earlier, you may also qualify for a low down payment. If you can take advantage of the HUD $100 Down program or One Dollar Down program, you should.

All of the programs they created are made to incentivize you to buy. Finally, HUD offers closing cost assistance. They will pay up to 5% of the purchase price to help pay for closing costs.

There are a few downsides to purchasing a HUD home that you should take into consideration as well. As we’ve discussed, you must buy them “as-is.” There’s no negotiating. Whatever the HUD says, goes. For this reason, in most cases, you’ll need to be open to either renovating the house yourself or hiring a contractor to do it for you.

This should be factored into your budget before you buy the house. Additionally, not all real estate agents are approved by HUD. If you have an agent you like to work with who isn’t approved, you’ll need to find a new one. Though they aren’t hard to come by, it’s another step you must plan for.

Lastly, there are the owner-occupant rules. If you buy a HUD home, you must agree to live in it for one year and you will be prohibited from buying another HUD home for two years after.

HUD and Consumer Protection

HUD was initially formed to help low income and low credit score consumers afford housing. While it still does that, especially via FHA loans, lots of consumers can take advantage of HUD programs. Modern-day HUD is also key figure in protecting consumers interested in buying a home.

Anyone interested in buying a home that needs a little (or a lot of) work at a discount should consider buying a HUD home. Additionally, HUD offers several programs to help certain groups buy HUD homes – low-income families, public service members, nonprofits, and more.

Although it can seem complicated from the outside, any HUD-approved real estate agent can help you understand the system and use it to your advantage. If you have the time, the money, and the knowledge, HUD can likely benefit you.

HUD plays a vital role in Consumer protection and the value they provide to the industry is significant.

Loan Officer Kevin O'Connor

Loan Officer Kevin O'Connor

He is the founder and main contributor of koloans.com. He has over 16 years of experience as a Mortgage Loan Originator (MLO) and is fully licensed with the state of California and the Nationwide Mortgage Licensing System (NMLS). He has a top rating with the Better Business Bureau, Google, and Zillow. He continually delivers the results homeowners are looking for; low rates, fast closings, and exceptional service. CA DRE #01499872 and NMLS # 247447

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