Difference Between HUD and Foreclosure

HUD homes and foreclosed properties are similar in many ways but at the same time ownership as well as the procedure of buying and selling are different. When a person cannot may the monthly mortgage, it becomes a foreclosed property and directly goes under the organization that lends the money during the purchase. HUD homes are one type of foreclosed property. 

HUD vs Foreclosure

The main difference between HUD and foreclosure is that HUD homes are bought using FDA loans and they are also offered to people with low income and questionable credit scores. The down payments for HUD homes are also very less. On the other hand, foreclosed properties can be purchased with financing from any bank or lender.  

HUD and Foreclosure

HUD homes are excellent alternatives to buying normal residential properties especially for people with low credit scores. But, the entire selling and buying process of HUD homes is a bit complicated than conventional real estate. HUD homes are purchased on FDA loans and they can be authing from single-room apartments to big houses. 

Foreclosure properties are very easy to find nowadays and the entire selling and buying process is comparatively less complicated than HUD homes. Low prices of foreclosure properties are what attract the customers but the foreclosures are often found in poor conditions. 

Comparison Table Between HUD and Foreclosure

Parameters of ComparisonHUDForeclosure
DefinitionA HUD home is a residential property that is owned and put on the market for sale by the US Department of Housing and Urban Development. A foreclosure can be owned by a bank, government, or a lender.
OrderHUD homes are a subset of foreclosure properties.Foreclosures properties are not a part of HUD homes. 
Finding PropertyFor finding HUD homes, one needs information like zip code, address, city, state, country, etc. Details of foreclosures can be found on the websites of banks and lenders. The realtor of an area can also help. 
LoansHUD homes are foreclosed properties bought using FHA (Federal Housing Administration) loans.One can buy a foreclosed property with a mortgage and it is very common. 
PurchaseA person cannot make an offer directly for purchasing a HUD home and can only do so with a help of a real estate agent. A person himself can make an offer if he wants to buy a foreclosed property. 
SellingHUD homes are sold through an online bidding system where each property has a definite deadline. Foreclosed properties are sold through auctions, short sales, directly from lenders, from governments, etc. 

What is HUD?

 HUD homes are owned and put on sale by the Department of Housing and Urban Development (HUD). Since HUD homes are purchased on FDA loans, in case of any defaulters, they immediately come under the possession of HUD. One can simply visit the HUDHomes website to search HUD properties in several areas. The contact details of the agents are also mentioned because HUD homes cannot be bought by making direct offers to the seller. 

When someone decides to buy a HUD home, the down payment depends on the credit score of the person. For example, a person who has a credit score below 580 needs to make a down payment of 10% and for a credit score above 580, the percentage decreases. The HUD home has to be FHA-insured to avail an FDA loan otherwise one might have to look for alternatives. 

A buyer has to make the HUD home he/she is purchasing the primary residence. Also, a buyer is not allowed to purchase a HUD home if he/she has already bought one in the past two years. There is another condition that after purchasing the person/family has to stay in the new home at least for a year.

What is Foreclosure?

There are various ways to find foreclosed properties as the lists are available in bank websites, newspapers, periodicals, multiple-listing services (MLS), etc. One can also approach a real estate agent for help as many lenders sell their properties through them. A foreclosed property is mainly owned by banks, lenders, or even governments. 

There are five types of foreclosures. They are mentioned below.

  1. Pre-foreclosures: When a lender attempts to sell a property before it is offered for sale at auction.
  2. Short sales: A situation where a lender is willingly accepting less for the given property than what is owed on the mortgage. 
  3. Sheriff’s sale auction: When a lender allows the buyer some more time to catch up on the mortgage payments.
  4. Bank-owned properties: When properties are not sold at the action and become real estate-owned properties. 
  5. Government-owned properties: When some properties are allowed to be purchased on loans guaranteed by the federal government. 

One of the most important things to do before buying a foreclosure is to examine the condition of the property. Most of the time, the house is found in a poor condition because people who know will lose ownership stop maintaining the property.  So, it’s better to have a proper look at the condition of the property access its correct market value.

Main Differences Between HUD and Foreclosure

  1.  A HUD home is a residential property that is owned and put on the market for sale by the US Department of Housing and Urban Development whereas a foreclosure is mainly owned by the lender who lends money to a family for buying the house. 
  2. All HUD homes are a subset of foreclosures but not vice versa.
  3. For finding HUD homes, one needs information like zip code, address, city, state, country, etc. to check on their official website. On the other hand, one can check the bank websites for foreclosure details or contact the realtor in that area. 
  4. HUD homes are bought using FHA (Federal Housing Administration) loans whereas foreclosed property can be purchased with a mortgage and it is very common. 
  5. A person cannot make an offer directly for purchasing a HUD home and can only do so with a help of a real estate agent whereas a person can make an offer himself for buying a foreclosed property. 
  6. HUD homes are sold through an online bidding system where each property has a definite deadline whereas foreclosed properties are sold through auctions, short sales, directly from lenders, from governments, etc.

Conclusion

Though HUD homes are a good choice for low-income families, one should also make a quick decision while buying one. This is because HUD homes are a lucrative investment and when they are up for bidding, the competition increases. So, one better is quick about buying HUD homes before the bidding opens for the investors and they buy them. Foreclosed properties also seem to be very appealing but the underlying costs (renovation and repair) are often overlooked. 

References

  1. https://digitalcommons.calpoly.edu/cmsp/503/
  2. https://www.bostonfed.org/-/media/Documents/Community%20Development%20Issue%20Briefs/cdbrief4-52020.pdf
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