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What Exactly Are 'HUD Homes'?

 
To call a home a “HUD home” is really a misnomer of sorts. The U.S. Department of Housing and Urban Development (HUD), as originally created under the Housing and Urban Development Act of 1965, is not a lender but a Cabinet-level agency with its secretary serving as a presidential appointee. In reality, HUD is the administrative agency that oversees, and is responsible for, a number of federal housing agencies and programs including the Federal Housing Administration (FHA) which insures home loans in specific qualifying areas of the country from default.

There is nothing extraordinary about HUD homes other than the fact that the mortgage used to purchase it was insured by the FHA. Whether a single-family residence, condominium  or townhome, the specifics of the room count, parking, amenities, etc. — none of it matters. What does matter, however, is that the price of the home fits within the guidelines to qualify for the FHA insurance program and that the lender you use is approved to offer FHA insured loans.

It is in fact these homes — ones that are originally purchased using an FHA insured loan — that become what can be referred to as “HUD homes” when the borrower defaults on the loan. Since the FHA has guaranteed the loan on behalf of the federal government, when the foreclosure process is completed, FHA pays off the lender of record. So, instead of the property going back to the lender as in a normal foreclosure situation, it goes back to its “owner” (which in this case is HUD) as the responsible party for all FHA insured loans.

Like a lender, HUD does not want to own a real estate portfolio. Part of the agency’s responsibilities lie in promoting affordable homeownership and equal opportunity for all citizens to own their share of the American Dream.

So just as the financial institutions do when properties come back to them as real-estate owned (REOs), the agency has real estate professionals represent their interest in selling these HUD foreclosures to the public through an established contractual process.

In some instances that process can include the possibility of the new owner assuming the existing FHA insured loan on the HUD home. Other times, it may require the new owner to go out and qualify for, and close on, new financing for the home.

In either case, finding HUD homes to purchase is not difficult to do. HUD sells foreclosed homes, also known as HUD home foreclosures all over the country through approved brokers.