Why Buying a HUD Home Isn't Like it Used to Be?

Whatever happened to buying a HUD home as an affordable option?

A little background would be helpful for those who aren't aware that a HUD home is a home that was purchased with an FHA loan that the Buyer/Borrower was no longer able to maintain the monthly payment on, and the Lender would use the mortgage insurance to have HUD satisfy the loan. HUD then takes title to the property, has it appraised, and offers it for sale AS-IS; typically with the help of real estate brokers.

Sometime between 2002 and 2003 as the market was becoming an aggressive Seller's market; it was decided that FHA loans were too much trouble. The appraisal standards were stricter and Seller's were required to pay loan costs on behalf of the Buyer. As the sub prime industry was growing and creating conventional products with low or no down payment requirements, it became common practice that the only way a Buyer's offer would even be considered when competing with a number of other offers was if it included Conventional financing and not FHA.

This leads to what has been a drastic decline in the number of HUD properties offered weekly.

Ironically in 2005, HUD opened it's Good Neighbor Next Door Program which offers a 50% discount on particular properties that were only available to Teachers and Police Officers initially to include Firefighters & Emergency Medical Technicians. The goal is to contribute to community revitalization by requiring the participants to reside in the property for a minimum of 36 months. Although there are fewer HUD properties available there are now more participants.

There isn't anyone who wouldn't agree that it is ideal that the program be open to all who work in a public service capacity, but the truth is that with the decline in the number of properties and the increase of eligible participants; even fewer are able to actually acquire a home with the discount.

I have had the pleasure to work with at least 50 families with this special program that has a number of nuisances that require expert assistance.

As FHA financing becomes more popular with the implosion of the sub prime industry in early 2007, we anticipate there will be an increase in available HUD homes and an opportunity for those invited into the program in early 2005 to actually participate. We, of course, hope there are never too many HUD homes available as that would mean that many families would have lost their homes.