Can I Buy a HUD Home With an FHA 203(K) Fixer-Upper Loan?
The section of the FHA official site titled "About Buying HUD Homes", describes these properties--they are single-family homes between one and four units. They are made available to sale to help the government recover the loss on the foreclosure claim.
Any qualified buyer can purchase a HUD home. From the FHA official site: "If you have the cash or can qualify for a loan (subject to certain restrictions) you may buy a HUD Home. HUD Homes are initially offered to owner-occupant purchasers (people who are buying the home as their primary residence). Following the priority period for owner occupants, unsold properties are available to all buyers, including investors."
HUD homes are foreclosed properties, and as such may not be in shape a buyer is used to when shopping for a home for sale directly from the buyer or broker. While there are FHA guaranteed home loans available for these HUD-owned properties, the government does not guarantee their condition.
A home inspection is a very important part of the home buying process for any FHA home loan or conventional mortgage, but even more so with the purchase of a foreclosed property. Borrowers should understand the nature of the property they are buying and what kinds of repair or renovation work may be required to make the property livable.
The FHA offers a 203(k) rehab loan to qualified borrowers for the purchase of HUD-owned properties. How does the 203(K) loan work?
According to the FHA, "When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods."
The FHA Section 203(k) loan program allows the borrower to avoid the high interest rates and short amortization periods by offering "just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. "
You can view a list available properties on the official HUD Homes For Sale page, also known as the HUD Home Store.
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