HUD vs. Bank Owned

People in the market for good deals on houses may find a gem or two within HUD and bank-owned property listings. These properties have gone through foreclosure proceedings, which means the banks and HUD are looking to recoup their losses. In some cases, buyers may want to take certain precautions before purchasing a home that’s gone through foreclosure.

HUD Homes

HUD, also known as the U.S. Department of Housing and Urban Development, sponsors a housing program that's designed to encourage home ownership across the country. HUD homes exist as residential properties made up of one to four units. These houses are auctioned off after home buyers foreclose on their mortgages and are sold in "as is" condition. With home ownership being the primary objective, HUD homes are initially offered to people who intend to purchase a home as their primary residence. HUD home listings become available to investors once the time period for an initial offering expires. Time period lengths can vary depending on location, or state.

Bank-owned Homes

Bank-owned house listings go through a two-stage process before ownership actually reverts to the bank, according to RealEstate ABC. Once a homeowner forecloses on a mortgage, the house goes back to the mortgage company first. Mortgage companies then place these homes up for auction. The houses that don’t sell revert to the bank, which means they become bank-owned properties. At this point, the bank may have to evict the former owners, make repairs and correct any faults or place liens against the property’s title. Much like HUD homes, bank-owned properties are sold in “as is” condition.

Financing a HUD Home

The U.S. Department of Housing and Urban Development doesn’t offer direct financing for HUD homes, though it does sponsor loan programs for renovating or rehabilitating HUD homes. In some cases, buyers may qualify for an FHA-insured mortgage, which is the type of financing HUD uses when selling homes that haven’t gone through foreclosure. FHA stands for the U.S. Federal Housing Administration, which acts as the insurer of the mortgage loan, according to Mortgage Services. For those who qualify, the requirements for securing an FHA mortgage are usually more lenient than those for a conventional mortgage, meaning lower down payments requirements, easier credit qualifications in terms of credit history and less stringent debt/ratio requirements.

Financing a Bank-owned Home

Financing a bank-owned home falls pretty much on the buyers shoulders in terms of qualifying for a loan and financing any needed repairs or renovations, according to RealEstate ABC. Buyers may have some leverage during the negotiation period as far as getting the bank to make needed repairs or reducing the sales price, especially in cases where extensive damage is present. Buyers also must foot the bill for any inspections done and negotiate their right to walk away from a purchase if a property fails to pass inspection. In some cases, a bank may provide the financing for a house that has extensive damage if the buyer makes the request for financing.