You might have seen some properties on the auction blocks that are listed as government-owned, and as a potential home buyer, you might think its a great deal. The federal government foreclosed on the home and now owns the title because the original homeowner defaulted on the mortgage. For example, you might see that the Department of Housing and Urban Development (HUD) foreclosed a home that had been financed by a Federal Housing Administration (FHA) loan. The Department of Veterans Affairs will also sell homes that it owns after a VA loan foreclosure. Here is what the government doesn’t want you to know about foreclosed homes.
How The Government Acquires Homes
The federal government will acquire and sell REO, or real estate owned properties, using brokerages and websites. The FHA, VA, and United States Department of Agriculture (USDA) allow guarantee mortgages, which helps to make homeownership possible to people who might not have been able to afford it otherwise. However, it is often through these mortgage guarantee programs that a home is foreclosed on if the owner defaults on the mortgage. The government then sells that property through an auction or other means to help get its money back.
What Is A HUD Home?
A HUD home is owned by the US Department of Housing and Urban Development after the original owner defaulted on an FHA-insured mortgage. The government doesn’t want to hold onto these houses, so they sell them below market price. However, if you buy the foreclosure as an owner-occupant, you must wait one full year after closure before you can sell the home.
What The Government Doesn’t Want You To Know About Foreclosures
Buying a HUD home can be a great idea. Besides getting a great deal on the property, you can also benefit in other ways. To receive many of these benefits you must apply, but anyone can qualify to purchase a HUD property.
Here are some of the benefits that you might not have known about:
- HUD will pay closing costs up to 5% of the purchase amount
- If you are using an FHA loan, you might be able to close faster if an FHA approved appraiser was used to appraise the home.
- You might be able to get 3% of your down payment covered.
- HUD loan programs are available.
Just like other foreclosures, most government REOs are sold “as-is,” which means you must handle any repairs of the home. Sometimes, the home might be in bad shape, but that isn’t always the case. You can request that the government makes repairs before you move into the property. Once you place an offer on the house, usually you can see it. The government will often give you a certain amount of time to inspect the house, and you are allowed to back out of the deal without losing your deposit. However, you can only do so if you have completed all insurance, title, and property condition inspections within the given time frame. Therefore, this loophole can be an effective way to get out of buying the foreclosed home without losing your deposit if the repairs seem to be out of your financial reach and skill.