If you’re looking for a well-priced home and wouldn’t mind a fixer-upper, you might benefit from a HUD home, which is a property that was foreclosed on and is now being sold by the US Department of Housing and Urban Development.
HUD homes can offer affordable deals, especially to those buyers who don’t mind fixing up a property, and you might find lower down payments and help with closing costs in some cases. But HUD houses aren’t for everyone, so read on to learn the details and the pros and cons.
What Is the Department of Housing and Urban Development?
HUD was created in 1965 as part of President Lyndon B. Johnson’s war on poverty. Its current stated mission is “to create strong, sustainable, inclusive communities and quality affordable homes for all.”
HUD oversees mortgage insurance programs for lower- and moderate-income families; public housing, rental subsidy and voucher programs; and many others. In this way, it helps to improve deteriorating properties.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
💡 Quick Tip: SoFi’s Lock and Look + feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.
What Are HUD Homes?
Here’s the definition of a HUD home: The one- to four-unit residential properties that HUD sells come into HUD’s possession as a result of defaults on mortgages insured by the Federal Housing Administration (FHA), which is part of HUD.
Owner-occupants get first dibs, after which bidding opens to investors. HUD pays the lender what is owed and then sells the properties to the public to make up the deficit from the foreclosure.
You can look at available properties at the HUD Home Store but must have a HUD-approved real estate broker or agent submit a bid for you.
Recommended: FHA Loan Mortgage Calculator Table
Who Can Qualify for a HUD Home?
If you have the cash or can qualify for a loan, you may buy a HUD home.
Following the priority bidding period for owner-occupants, HUD-approved nonprofit organizations, and government entities, unsold properties are available to all buyers, including investors.
If you will be an owner-occupant, you must plan to live there for at least a year and can’t have purchased another HUD home within the last two years.
If you will need an FHA loan or other mortgage, expect to pass income and credit checks.
If you are buying as an investor, you’ll need to wait 30 days before bidding on a single-family HUD home listed as “insured” or “insured with escrow,” up from 15 days as of January 3, 2024. Homes with those designations are eligible for FHA-insured financing, meaning they may only need cosmetic repairs or nonstructural repairs of up to $10,000.
If the home is listed as “uninsured,” buyers cannot get a typical FHA loan, but they may be able to use an FHA 203k loan — a program that allows buyers to make repairs after closing and finance the cost into their loan.
Recommended: The Most Affordable Places to Live in the US
HUD Assistance Programs
HUD sweetens the pot to help make the dream of buying a home come true.
• With the Dollar Homes program, low- or moderate-income families can purchase a HUD-owned home for $1. The Dollar Homes are single-family homes that have been in foreclosure and the FHA has been unable to sell for six months. The vacant homes have a market value of $25,000 or less.
• The Good Neighbor Next Door Program rewards law enforcement officers, K-12 teachers, firefighters, and emergency medical technicians with a 50% discount on the list price of the home. It must be the homebuyer’s principal residence for three years.
HUD requires that you sign a second mortgage and note for the discount amount. No interest or payments are required on this “silent second,” provided that you fulfill the three-year occupancy requirement.
• You might also find that the FHA HUD $100 Down Program is available in some areas. This involves buying a home with just $100 down vs. the usual requirement.
Buying a HUD Home
Buying a home is a big deal, especially if you’re a first-time homebuyer. How to buy a HUD home, though? Know that buying a HUD home is different from purchasing other properties. For one thing, it has to be sold at auction. If you get the winning bid, HUD contacts your agent and gives you a settlement date, often about 30 to 60 days to close.
Do keep in mind that with HUD, you get what you get. These homes are sold as is. At least go in with your eyes wide open about what you’re purchasing.
Finding HUD Homes
HUD homes exist in their own universe. You can’t find them just anywhere like other homes. You can find them on the agency’s website, the HUD Home Store, and in links to listings of homes being sold by other federal agencies.
Financing
You can finance a HUD home like any other home, though the lender will need to be HUD-approved. You may want to start by finding down payment assistance programs.
Also search for options like an FHA loan, which may be easier to obtain if you have credit issues, costs may be lower, and a lower down payment may be required than elsewhere. You might want to look into FHA 203k loans as well.
If you’re a veteran, a current member of the armed forces, or the spouse of a service member, consider looking into VA loans that might offer you better terms than other loans.
Getting preapproved for a loan is a good practice generally and particularly when you’re going after a HUD home. You’ll want to be ready to pounce if you get the green light on the home you’ve got your heart set on.
Recommended: Home Loan Help Center
HUD Homes vs Conventional Homes
Ready to compare HUD homes vs. conventional homes? Here’s the intel in chart form.
| HUD Home Pros | HUD Home Cons |
|---|---|
| Low down payment | Home is sold “as is” |
| Help with closing costs | Must use HUD-approved real estate agent or broker |
| Home may be priced below market value | Limited supply, sold at auction |
| Conventional Home Pros | Conventional Home Cons |
| Wide market, lots of choices | House may be priced higher |
| Use any real estate agent | Closing costs may be higher |
| Qualify for a range of mortgages | Down payment may be higher |
Pros and Cons of HUD Homes
Now, here’s how the pros and cons of HUD homes stack up.
First, the pros of HUD homes:
• A low down payment can make purchasing a home more affordable.
• There’s help with closing costs, which can make a big difference in home-buying expenses.
• Homes may be priced below market value, making them more within reach for limited budgets.
• Also, you may get a jump on the marketplace because investors must wait 30 days to shop.
As for the cons, here are the key ones:
• Home is sold in “as is” condition, which can mean there’s a lot of work (DIY projects or otherwise) to be done.
• You must use a HUD-approved real estate agent or broker, which can limit options.
• Limited supply, sold at auction, so you may not have your pick of properties.
• There are restrictions. As the owner-occupant, you need to live there for at least a year (three for the Good Neighbor program), and you can’t purchase another HUD home for at least the next two years.
The Takeaway
Whether you’re buying a HUD home for your own use or as an investment, getting financing lined up is essential. Getting pre-qualified and then pre-approved for a home loan lay the groundwork.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What does HUD do?
HUD is an agency of the federal government that is responsible for national policy and programs that address housing needs in the US.
How do you qualify for HUD housing in California?
Requirements will vary depending on where in the state you live, so check with your local housing authority. For example, a family’s gross annual income must be below 50% of the Area Median Income (AMI) in Los Angeles County.
What are the different types of HUD?
There are several types of HUD programs, including FHA Mortgage and Loan Insurance, Section 8, Public Housing, and Fair Housing Assistance Program.
Photo credit: iStock/CatLane
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
+Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOHL0124001