Thursday, July 8, 2010

HUD $100 Down Loan Program

We've gotten a number of requests for information about HUD's $100 down deals in the past week, so here's a rundown of what you need to know:

-- A HUD home is a house that used to have an FHA loan, but it went into foreclosure. HUD now owns the property.
-- HUD (the Department of Housing and Urban Development) is the agency that oversees the FHA loan program.
-- If a buyer makes a full price offer on a HUD home, they are able to buy the property with a down payment of only $100 if they get an FHA loan.
-- If they bid more than the listing price and want FHA financing, they have to pay any excess amount in cash.
-- A buyer does not have to get FHA financing to buy a HUD home. HUD does not care at all where the money comes from. They just want to sell the property.
-- HUD will pay up to 3% towards the buyer's closing costs and pre-paids. To get the 3%, you need to ask for it when you bid on the property.
-- Earnest money requirements are as follows: if the sales price is $49,999 or less, the earnest money is $500; if the sales price is $50,000 or more, the earnest money is $1,000.
-- If the buyer uses the FHA $100 down program and does not have to pay for any closing costs, they will be able to get their earnest money back at the closing (except for $100).

Do not let anyone try to talk your buyers out of getting FHA financing. The appraisal guidelines for FHA loans are a tiny bit more restrictive than they are for conventional loans, but there is hardly enough difference to avoid FHA loans. Some brokers who have "been in the business for years" have not kept up with the changes in the mortgage industry and are doing themselves and their clients a real disservice by avoiding FHA loans.

If a lender ever tells you to stay away from FHA loans, that probably means they are not approved to sell them. You should not use those lenders.

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