HUD Homes and the FHA 203K Loan
What is a HUD Home?
Are you interested or wondered what HUD homes are and how to finance them? Well, just like properties which are purchased with conventional loans, properties purchased with FHA insured financing also at times go into foreclosure. When that happens those properties are then acquired by the Housing and Urban development (HUD). HUD becomes the owner of these properties that were financed with an insured FHA loan and then offers them for sale to recover the loss on the foreclosure. That is what a HUD home is.
How can I buy a HUD Home?
A HUD home can be a 1-to-4 unit residential property, condo, townhome or PUD and yes you can buy one. Actually anyone can buy one if you have the cash or can qualify for a loan. HUD sells these properties through a bidding process so you will need a Real Estate Broker that can sell HUD homes to submit the bid for you. The bidding time frame and who is allowed to bid on the property depends on what listing period it’s in. The two most common listing periods you will see when searching for HUD properties will be “exclusive” and “extended” listing periods.
The exclusive listing period is primarily to give owner occupant bidders a head start before the property goes into the extended listing period phase. When the exclusive listing period ends then all buyers are welcome to bid, owner and non-owner, so investors are welcome during the extended listing period.
If you are a homebuyer who plans on occupying the property then your bid is given priority over all other bidders regardless of the listing period, exclusive or extended. When making bids for a property in the exclusive listing stage, your submitted sealed bid will be reviewed along with any others on the “bid open date”. When biding on a property in the extended listing period, bids are reviewed as they come in on a first come, first served basis.
How to finance a HUD Home
If you can purchase using all cash great! There is no need to talk about financing. For most homebuyers though who need a loan, the lending options are the same as if you were buying any other type of property on the market. In other words, the financing is your responsibility as HUD does not provide direct financing to buyers of HUD Homes. There is good news though if you use an FHA loan, because HUD will have already had an appraisal performed before they put the property on the market, so you could bypass ordering a new appraisal.
To find out if you can take advantage of using an FHA loan you must find out if the HUD Home you are interested in is “insured” or “un-insured”. If the property indicates “Insured” then you have the green light for an FHA 203b loan. If the property is “un-insured” then it might be eligible for an FHA 203k loan which includes rehab funds. Both FHA loans are only for owner occupied buyers. Sometimes HUD homes will have two FHA financing options. The FHA 203b (without rehab) and the FHA 203k (with rehab) but other times only one of those choices will be available and at times neither will be a choice.
Here is an example of what you might see under listing information and what you should look for if you plan to use FHA financing on a HUD home. If the “FHA financing” slot shows IE (insured escrow) that means you can use a standard FHA 203b loan to purchase the property.
If the “203k Eligible” slot shows “Yes” that means you can use the FHA 203k as another financing option to purchase your property as well. The “Repair Escrow” slot is the allowance amount that HUD will give the buyer to address specific repairs. “Repair Escrow” is only available on some properties.
| Listing Information | |
| List Date: | 01/01/20** |
| Listing Period: | Exclusive |
| Period Deadline: | 01/01/20** 11:59:59 PM CST |
| List Price: | $100,000.00 |
| As-Is Value: | $100,000.00 |
| FHA Financing: | IE (Insured Escrow) |
| 203K Eligible: | Yes |
| Repair Escrow: | $1,100.00 |
| Review PCR for Repair Escrow Items | |
When the “FHA Financing” slot shows UI (uninsured) then the FHA 203b is not an option.
When the “203k eligible” slot shows “NO” then the FHA 203k is also not an option.
HUD homes are sold in there “AS IS” condition which is why many of them give you the option to use the FHA 203k loan. Remember these properties are foreclosures so it’s not unusual that something is needed. This is where the 203k loan comes into play because you can purchase and renovate or repair your HUD home all in one loan. It’s a great way to purchase your HUD Property to turn it into the home you want, so working with an FHA 203k Loan Specialist will allow you to have both FHA options available to you.
Where do I find a HUD home?
You can find your HUD home online at the HUD home store here:
http://hudhomestore.com/HudHome/Index.aspx
There you can find HUD HOMES in the states below as well as in U.S Territories:
| Alabama | Alaska | Arizona |
| Arkansas | California | Colorado |
| Connecticut | Delaware | Florida |
| Georgia | Hawaii | Idaho |
| Illinois | Indiana | Iowa |
| Kansas | Kentucky | Louisiana |
| Maine | Maryland | Massachusetts |
| Michigan | Minnesota | Mississippi |
| Missouri | Montana | Nebraska |
| Nevada | New Hampshire | New Jersey |
| New Mexico | New York | North Carolina |
| North Dakota | Ohio | Oklahoma |
| Oregon | Pennsylvania | Rhode Island |
| South Carolina | South Dakota | Tennessee |
| Texas | Utah | Vermont |
| Virginia | Washington | Washington DC |
| West Virginia | Wisconsin | Wyoming |
Ready to get started?
Then get qualified first with an FHA Loan Specialist for your state and then get connected to an authorized HUD Broker/Agent to get your bid submitted on your HUD Home.
how do the disbursements work exactly on a full 203K loan. i want to know the step by step before I decide to begin
Hi Arleen,
There is no “one answer covers all” for your question since each lender can do their draw process differently. A Streamline allows for a portion to be released immediately after closing and the remainder upon final inspection. A full 203k allows you to do more work or “non-cosmetic” work and those funds are disbursed in a manner like a construction loan where funds are released after progress inspections based on pre-determined points. Some lenders will allow a small portion of funds to be released on a full 203k up front for materials or specialty items but this will vary between lenders so it’s best to ask the lender you select.
Best of Luck
HUD is back at extension fee shenanigans. Now they want me, the buyer to get a bid for lead abatement by two days’ time or else pay another $375 fee. We had the clear to close in one week when they dropped this bomb. I find this very hard to believe that it’s even legal- as does my attorney. His response is: that’s the government for ya.
I do not want to accept this behavior. Is there any ethics commission I can appeal to after all this is over? (if i don’t pay the fees, the contract will be cancelled).
Hi Freya
It’s unfortunate to hear about your continued troubles with your purchase. Typically the matter regarding lead-based paint (on HUD homes) is disclosed in the beginning of the purchase process whether it’s within the contract or addendums. An oversight can and do happen but with there being various parties involved in a transaction the question is knowing for sure where the oversight came from. Regardless and regretfully though it’s an additional cost that for sure you could have done without.
Hang in there and best of luck to you.
I am in the process of buying a hud house- fha/203k- which was required as opposed to a conventional loan, because there are no kitchen cabinets or sink- making it not habitable. The hometelos rep is claiming now that she never knew it was a 203k loan (which I find hard to believe because the property would never be anything but a 203k) and is demanding that I pay an extension fee of $375 before the next 5 days are up or the contract will be cancelled. I signed numerous forms on this two weeks ago. She has also received numerous emails and signed forms regarding the fha 203k loan for the last two weeks.
What are my chances of getting this fee back at closing? How can the program be streamlined to ensure that the next family won’t be subject to a fee based on another’s incompetance?
Hi Freya
It’s unfortunate to hear that your rep. has overlooked the type of financing you were using based on what you have described. As far as the unexpected $375 extension fee you can always ask for some type of reimbursement but if not then keep your eye on the prize and remember what a nice home you’ll have once it’s all done.
For future reference a signed acknowledgement by the reps/agents on both the buying and selling side on the type of financing being used should avoid any misunderstandings later in the transaction. When it comes to incompetence…well, that’s much harder to overcome.
Best of luck
What’s the maximum allowed 203K renovation loan for a home in South Florida?
Hi Wills,
Your 203k Renovation Loan is only limited by the maximum FHA loan limit for the state and county the property is located, which in this case is South Florida. Feel free to use this easy and convenient FHA Loan Limits tool. All you need to do is put in the property zip code to check out what those limits are. Or, if you prefer you can go directly to the HUD FHA Mortgage Limits website page.
Best to you
Are your inspection fees and title fees included in a 203k rehab loan? Alos, we are asking for seller concession to be paid by the seller on this foreclosure, if they dont agree to pay those fees are they due upfront with our down pymt or rolled into our mortgage?
Hi Jenn,
Yes, inspection and title fees that are only related to the rehab portion are included and rolled into the 203k rehab loan, they are not paid upfront.
This is not to be confused with title and inspection fees not related to the rehab portion. Those are separate and are not financed. Any concessions you get from the seller would only apply to the non-rehab portion.
Best of luck on your foreclosure purchase.
I don’t have a credit history. how can I get a 203k loan for a house that lists at $12,000. My broker friend says that it will need work to make it livable. Do I have any hope or should I forget about ever buying a home. I am 44 years old and have always bought with cash and have never established credit. When I go to websights to have a credit check done they come back saying that I don’t have enough information to get a credit score.
Hi Daniel,
Unfortunately, mortgage lending is geared towards a credit score and without one it would be very difficult to obtain any type of mortgage. I would suggest getting started on a credit profile by obtaining some “secured” credit cards. It will take months before a credit score is reflected but it is the first step on that road to homeownership.
With that said, there are still some lenders who will consider non-traditional credit so if you’re not already doing so, get a checking account and pay your utilities, phone bill and MOST IMPORTANTLY, your rent using that checking account. Canceled checks can verify a good payment record for utilities and rent and will go a long way in shoring up a nominal credit profile.
Best of luck
203k Mortgage Lender