We at HUD would like to help. HUD, short for the U.S. Department of Housing and Urban Development, is a government agency created to make the American dream of homeownership a real possibility for everyone. And that includes you.
Since 1934, we've been putting Americans, millions of them, through the doors of their own homes. We do it by making home buying easier and more affordable. You see, HUD owns homes in many communities throughout the U.S., and we offer them for sale 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.
Fortunately, there's a pretty simple formula for coming up with this number. It's the Federal Housing Administration (FHA) formula that many mortgage lenders use. The FHA has found that most people can afford to budget 29% of their gross monthly income to housing expenses, depending on total debt. Buyers with no debt can budget as much as 41% of monthly income to housing.
No need to reach for your calculator--we've done the math for you. The two charts below should tell you everything you need to know.
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% 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.
COST 6% 6.5% 7% 7.5% 8% 8.5% 9% 9.5% 10% $ 25,000 $ 150 158 166 175 183 192 201 210 219 $ 30,000 $ 180 190 200 210 220 231 241 252 263 $ 40,000 $ 240 253 266 280 293 308 322 336 351 $ 50,000 $ 300 316 333 350 367 384 402 420 439 $ 60,000 $ 360 379 399 420 440 461 483 505 527 $ 70,000 $ 420 442 466 489 514 538 563 589 614 $ 80,000 $ 480 506 532 559 587 615 644 673 702 $ 90,000 $ 540 569 599 629 660 692 724 757 790 $100,000 $ 600 632 665 699 734 769 805 841 878 $110,000 $ 660 695 732 769 807 846 885 925 965 $120,000 $ 719 758 798 839 880 923 966 1,009 1,053 $130,000 $ 780 822 865 909 954 1,000 1,046 1,093 1,141 $140,000 $ 839 885 931 979 1,027 1,076 1,126 1,177 1,229 $150,000 $ 899 948 998 1,049 1,101 1,153 1,207 1,261 1,316 $160,000 $ 959 1,011 1,064 1,119 1,174 1,230 1,287 1,345 1,404 $170,000 $1,019 1,075 1,131 1,189 1,247 1,307 1,368 1,429 1,492
A good real estate agent is all of these things. He or she will be well-acquainted with all the important things you'll want to know about a neighborhood you may be considering. The quality of the schools, the number of children in the area, the safety of the neighborhood, traffic volume; a real estate expert will be aware of these factors and more.
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 advantages and disadvantages of 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. In some areas, a HUD office may accept a counter-offer from you, but if your counter-offer is not accepted, the home goes back on the market. What's more, HUD responds promptly to your offer, and if it's accepted, closing on the home will usually occur within 30 to 60 days.
Finding a HUD 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 commission.
Another valuable resource is a professional housing counselor. To locate the HUD-approved housing counseling agency closest to you, just call 1-800-569-4287, or 1-800-358-6216 for the hearing impaired.
Of course, your real estate agent is going to 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 biggist 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. In some cities, newpapers carry listings of HUD Homes, but this is not always the case. 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 properities, 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, 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.
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. You'll submit your offer through a real estate broker, in the form of a sealed bid using the HUD contract form. 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 of up to 6% if the commission amount is requested as part of the bid.
Sometimes HUD accepts an offer that's less than the listing price, depending on market conditions and the length of time the property has been on the market. Sometimes buyers make bids higher than the listing price, if they believe the market conditions demand it, or if the home is particularly appealing.
You will generally make your offer for a HUD Home during a designated "Offer Period." At the end of the 10-day offer period, all the bids received on the home will be opened at a public event which you may attend. (Full-price offers are often opened immediately.) If your offer is accepted, your broker will be notified, generally within 48 hours.
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.
First of all, you should know that HUD itself does not provide financing. You can obtain financing through a bank or mortgage lender. And since many HUD Homes are eligible for FHA-insured mortgage loans, this often makes 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 loans.
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, sometimes significantly.)
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% to 20% down payment required by most lenders can still buy a home. Many HUD Homes can bought with FHA-insured mortgages, which allow you to purchase the home with as little as 3% down. 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 otpion best suits your needs.
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 the "Q and A" section that follows. If not, why not go straight to the phone right now, and call a real estate agent 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.
Good luck and have fun!