Buyers using HUD loans are typically looking for a low down payment option with excellent terms. In addition to ensuring a low down payment and great terms, HUD loans offer flexible guidelines. Therefore, loan approval chances are higher compared to other loan types.
Are HUD Loans and FHA the Same?
Lenders like to throw around a lot of abbreviations: DTI, FHA, USDA, VA, LTV, VOE, and many others. In this article, we are going to talk about only two: HUD and FHA (which most people use interchangeably). HUD is short for the U.S. Department of Housing and Urban Development. This U.S. department and oversees, as well as, encourages home ownership. HUD offers affordable housing and one of the most popular programs is FHA.
FHA operates under HUD and insures HUD loans which helps buyers obtain affordable financing with flexible terms. FHA is actually the only government agency that is fully self-supporting. This means that FHA stays in existence from its own funds without depending on another government agency to support it. The income FHA receives derives from the mortgage insurance paid by homeowners, which includes the FHA funding fee and the FHA Mortgage Insurance Premium.
Let’s explore popular FHA / HUD loans available to buyers today:
FHA 203b Loans
203b is just how lenders refer to an average FHA purchase with 3.5% down payment. FHA is one of the most popular loan types because of the low down payment, affordability, and flexible guidelines. FHA loans offer advantages in the following areas:
- Gift of equity – family transactions
- Gift funds for down payment
- Manufactured home financing
- Streamline refinance
- Cash out refinance up to 85% of appraised value
- Seller may pay up to 6% of purchase price in closing costs
- Short seasoning for bankruptcy, foreclosure, and short sales
- Non-occupying co-borrowers allowed
- One-year commission income allowed
- Higher debt to income ratios – possibly 55% or more
That’s a lot of advantages so it is easy to see why it is such a popular loan. Our loan officers are well versed in FHA guidelines to help buyers navigate through the process to closing. Does your home purchase fall within FHA maximum loan limits? Check out the chart below or click the link to search your county.
2018 FHA Loan Limits for Low & High-Cost Areas
|Area||One Unit||Two Unit||Three Unit||Four Unit|
HUD $100 Down Program
Many buyers, especially first time home buyers, are looking for as little down payment as possible. Well, $100 is pretty low! The HUD $100 down program is an FHA loan with a twist. Instead of the minimum required 3.5% of the price down payment, FHA allows a $100 minimum required investment. Regretfully, this program is limited to eligible properties. In order to use the HUD $100 down program, the property must be a HUD foreclosure or in other words, a HUD REO. There’s another set of initials! Real Estate Owned is what it stands for by the way. In addition to being a HUD owned foreclosure, HUD must state that the listing is eligible for the $100 down incentive. So, that’s where it gets limited.
HUD $100 Down Program Requirements
- Primary residence only
- Single-family homes, not manufactured homes
- Full price offers only – HUD REO properties do not negotiate
- Could not have purchased a HUD home within 24 months
- $100 down program must be in the signed contract
- Standard FHA credit score requirements
To search HUD homes for sale, you can search the HUD.gov site. You may find your new home and get it for $100 down!
FHA 203k Purchase Renovation Loan
Many foreclosures need renovations and HUD foreclosures are no different. Often, foreclosures are vacant for a period which means they may be neglected. Luckily, an FHA 203k loan will finance the purchase and renovation of a home. There are many great benefits of the 203k renovation loan. First, there is still only a 3.5% down payment. Plus, down payment is factored off the total purchase price and renovations. That is so much better than paying the down payment required on a regular loan and then paying cash for the whole rehab job after closing! For more details, check out these very helpful features of the 203k renovation options.
FHA 203k Features
- 640 minimum score
- Available for purchase or refinance
- Gift funds allowed for cash to close – A buyer could purchase a rehab property with none of their own funds!
- Attached or detached single-family residence, 2 – 4 unit homes
- Up to 110% of appraised value
- Minimum repairs: None on 203k limited, $5000 on 203k full
- Swimming pool repairs
- Tear down/rebuild allowed on 203k full if a portion of existing foundation used
- Mold and lead-based paint remediation is allowed
- Appliances allowed
- Minimum age of home is one year
- Nonstructural and structural repairs allowed (only 203k full for structural)
Want to know more renovation loan options and learn which matches your scenario? Check out our article, “How Does A Renovation Loan Work?” which explains the process plus compares the programs to each other.
Down Payment Assistance Loans
What if everything about an FHA loan sounds great except the down payment? You have exhausted every possible source such as gift funds, bank accounts, retirement loan or liquidation, the cash value of insurance, stocks, mutual funds, wedding gifts, employment bonuses or commissions, or selling an asset. Luckily, down payment assistance could be the answer. Down payment assistance can bridge the gap between the purchase price and loan amount. Plus, if there are extra funds remaining, they could contribute towards closing costs.
Down payment assistance program types, amounts, and guidelines vary by state and agency. Some DPA (more initials!) programs have a set loan amount such as NC Housing $8000 DPA or SC Housing $6000 DPA, where others may be a percentage of the first mortgage loan amount. At first glance, these guidelines may seem tricky to a buyer. So, it is important to speak to a loan officer familiar with your particular scenario and determine the available options.