The U.S. Department of Housing and Urban Development administers a number of housing-related programs on behalf of the federal government. Some of its programs operate under the Federal Housing Administration, which is a HUD agency dedicated to helping qualified buyers borrow money to purchase homes. It does this by insuring their mortgage loans. When a buyer with an FHA-insured loan defaults, a HUD foreclosure is the result.
When the FHA insures a mortgage loan, the lender carries less risk because the FHA reimburses the lender for losses due to the borrower's default. The FHA charges a premium for the insurance. The borrower pays this mortgage insurance premium on the lender's behalf. An initial premium may be due when the loan closes. The borrower's subsequent premium payments are included in his monthly mortgage payments.
When a borrower defaults on an FHA-insured mortgage loan and the lender forecloses, the FHA reimburses the lender's losses. The FHA then takes possession of the house and attempts to sell it to recover its own losses. These so-called HUD foreclosures are generally repaired to the degree necessary to meet the FHA's habitability standards for homes purchased with loans it insures. Because these standards are relatively high, HUD foreclosures are often in move-in, or nearly move-in, condition.
Finding a HUD Foreclosure
HUD has two primary venues for marketing its foreclosures. The first is the HUD Homestore, which is a website HUD uses to list its foreclosures and educate consumers and real estate professionals about the buying process. HUD lists its foreclosures for sale through local real estate brokers. The brokers list the foreclosures on multiple listing services so that all brokers who subscribe to the services can find buyers for the homes. Therefore, a local real estate agent can provide you with a list of currently available HUD foreclosures.
Buying a HUD Foreclosure
For a short time after a HUD foreclosure hits the market, only buyers who intend to live in the home may purchase it. After that time passes, anyone may purchase the home. However, prospective buyers must work with real estate agents whose brokers are registered to sell HUD homes. After you find the home you want to purchase, your agent will help you determine a realistic a bid, or offer price. The agent will enter your bid on HUD's auction site. HUD will notify you when your offer is accepted. At that time, your agent will submit your sales contract and your earnest-money deposit to the home's listing broker.
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