Hud Homes

Written by Patricia Skinner
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One of the categories of government foreclosure homes for sale is HUD homes. HUD homes are those that were originally purchased by the borrower with a Federal Housing Administration (FHA) mortgage loan. HUD stands for Housing and Urban Development Agency, which is a Federal agency.

The federal government originally insured this loan, which made an FHA loan possible in the first place. Such loans were designed to assist first-time buyers by making it easier for them to get a loan. HUD homes are attractive to lenders because the federal government insures the loan 100 percent, which consequently lowers the lender's risk.

HUD Homes Details

The United States government agrees to repay all money lost back to the lender if the property in question goes into foreclosure at any stage. The federal government protects itself by collecting what it calls a "mortgage insurance" (MI) premium on the loan. That premium is typically 2.25% of the total mortgage amount.

Such a premium allows buyers to get into their house for somewhere around 3 percent down-payment (of the purchase price). This makes home buying a possibility to a greater number of Americans--people who otherwise would not be able to afford to buy a house. All MI premiums are combined nationwide and allow the FHA to continue lending to first-time buyers. In purchasing a HUD foreclosure (otherwise known as an FHA foreclosure), you may note that HUD will normally pay all closing costs, there are flexible credit requirements and usually no appraisal is needed.

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