How to Buy a House Through HUD With Bad Credit

by HomeLoan.com
HUD homes are homes that entered into foreclosure while the homeowner had a loan insured by the Federal Housing Administration (FHA). These homes become the property of the U.S. Department of Housing and Urban Development, which then offers the home for sale to recover the money lost through the foreclosure process. In some cases, these homes can be purchased at bargain prices, making them appealing to those with bad credit or tight budgets who wish to become homeowners.

Step 1

Apply for a Federal Housing Administration loan (FHA loan). These loans have easier credit qualifications than traditional mortgages, and require as little as 3.5 percent of the purchase price as a down payment.

Step 2

Find a real estate agent who is registered with HUD, and ask to see HUD listings in your area. Learn of agents in your area by calling HUD at (800) 569-4287 or contacting local HUD housing counseling, which you can find on the HUD website.

Step 3

Check the HUD Internet listing site for your state to see pictures of available properties.Browse listings online through the HUD Homes website for your state.

Step 4

Ask your agent to submit an offer and contract on the house you have chosen when you find one you like. Any real estate agent can register with HUD, but only registered agents can submit offers on HUD homes.

Step 5

Wait for the FHA appraisal. If the home does not pass the appraisal, look for a different house.

Step 6

Consider getting a home inspection if your offer is accepted. HUD homes are sold with no home warranty, so knowing the condition prior to purchasing the home is important, and some problems in the home will not be discovered during the FHA appraisal process.

Tips and Warnings

  • Remember that HUD does not offer financing, but some HUD homes qualify for FHA loans. These loans are easier for those with bad credit to qualify for because they are federally insured.
  • The FHA wants to insure homes that are in good shape and worth what you will be paying, so all homes must undergo the FHA appraisal process, which looks at the home to determine whether it is in livable condition and priced at fair market value. Some "fixer-uppers" will not qualify for FHA financing.
  • Rather than looking specifically at the credit score, an FHA lender will look at the recent credit history to determine creditworthiness, which means those with bankruptcies or low credit ratings who have a solid record of repayments over the past year or two may be eligible.
  • The FHA will only insure loans that take up 29 percent or less of the buyer's monthly income, and you will need to prove your income with proper documentation, such as copies of your tax returns.
  • Even though the FHA is not overly concerned with credit scores, it is concerned about your ability to repay the loan. If you have a lot of existing debt, consider paying some down before applying, because debt-to-income ratio is one of the factors the FHA will consider when approving your loan.


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