August 4, 2011
A HUD home is defined by the FHA as “a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage.”
When a home owner with an FHA mortgage loses the property because of loan default and foreclosure proceedings, the Department of Housing and Urban Development takes ownership and puts the house back on the market.
According to the official site, HUD homes are sold as-is and have no warranty. There are two basic types of HUD homes available. One is considered “insurable” which means they meet the FHA’s minimum property requirements and would theoretically be eligible to be purchased with an FHA home loan. The other type is classified as “uninsurable” which means the property does not live up to FHA MPRs.
But an uninsurable property isn’t completely excluded from FHA financing options. Even an uninsurable HUD home may qualify for the FHA 203(k) Rehabilitation loan. Buyers interested in fixer-upper properties could purchase an uninsurable HUD home with a 203(k) Rehab loan and refinance that loan once work is completely done.
The refinancing would convert the 203(k) loan to a standard FHA 203(b) home loan, which is the same loan most typical FHA borrowers get when they want to buy a house with an FHA insured mortgage.
The FHA 203(k) is a single long-term loan issued based on the projected value of the home once all rehab work is complete, plus the cost of the rehab work to be performed. There are rules concerning how the funds are distributed during the rehab work, and how the property must be certified as “complete” in order to refinance. Your FHA approved lender can help with more information on how the 203(k) program works or you can contact the FHA directly
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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