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The prospect of buying a home can be daunting. Most of us dream of owning our own home -- a
house, a condo, or a townhouse -- but the thought of finding the right place, wading through
reams of paperwork, and taking out a mortgage can be overwhelming.

Actually, it's not as bad as it may seem, especially when there's help available. A good place to
start is with a new publication from the U.S. Department of Housing and Urban Development,
The HUD Home Buying Guide.

One of the first things to do is figure out what you can afford. Most of us can't snap off a check
for the total price -- we'll need a loan, a mortgage. And that means knowing how much we can
afford to pay on that loan each month.

No two people are in the exact same financial situation, but a good rule of thumb is 25% to 29%
of your gross monthly income can go toward housing, depending on the size of your down
payment and whether you purchase mortgage insurance. Keep in mind that this has to cover not
only your mortgage payment, but all housing costs, such as taxes, insurance, and any
homeowners association fees.

Determining 29% of what you gross is pretty simple. Let's say you earn $2,500 a month
(remember, this is before taxes). Multiply that by .29, and you'll see that you can probably spend
about $725 a month on housing.

O.K., that's the easy part. But if you have $725 a month to put towards housing, what exactly
does that mean when you're looking at the total selling price of a home? And since the interest
rate on the loan affects your monthly payment, you have to consider that as well.

Fortunately, The HUD Home Buying Guide includes an easy-to-read mortgage payment chart
based on a 30-year, fixed rate mortgage. With it, you'll have a pretty good idea of the selling
price you can afford, at a particular interest rate, given your monthly income. Data is provided
for interest rates ranging from 6% to 10%, and for homes with selling prices up to $170,000.

Knowing what you can afford is just the first step; there's still a way to go before realizing the
dream of owning a home. But you don't have to do it all yourself; a real estate agent can help.

After discussing the kind of home you want, the areas you're interested in, and the various
features you're looking for, an agent can show you those places within your price range. You
may not be able to find a 3-bedroom house on the north side of town with a fireplace and
finished basement just by driving through neighborhoods. But if there's one on the market, your
agent probably can.

Most people only buy a house once or twice in their lives. Real estate agents do it every day.
They'll help you decide between mortgages, handle the seemingly endless paperwork, and be
there to answer any questions you may have. Just remember, the agent's commission is usually
paid by the seller, not the buyer. Which means when it comes to negotiating the sales price, the
agent is normally working for the seller.

Before making what could possibly be the biggest investment of your life, learn as much as you
can about the home buying process, including some terms you may not be familiar with. Do you
know what's meant by "earnest money"? What about "assumable loan"? You will with The HUD
Home Buying Guide. You'll also learn more about homes sold through HUD (see below), find
out about various types of mortgages, and much more.


HUD owns homes in communities across the country, and sells them at attractive prices and
economical terms. Some may be "fixer-uppers," but many are in very good condition and located
in fine neighborhoods. HUD homes are sold "as is," so you'll want a trained home inspector to
check the structure before you buy.

One of many advantages to buying a home from HUD is the reduced down payment, usually
only 3% instead of 10% to 20%.

Unlike buying a home on the private market, to purchase a home from HUD you must submit a
sealed offer through a real estate broker. HUD sets an asking price, and bids for that amount are
opened immediately. All others are opened after a l0-day offer period. The home generally goes
to the highest acceptable bid.

You'll learn more about buying a home from HUD in The HUD Home Buying Guide. For
specific information on HUD homes available in your area, check the newspaper classifieds or
talk to a real estate agent.

Your dream home could be a HUD Home. Almost everybody has a dream home. A place they
like to wander through in their thoughts, choosing imaginary wallpaper and putting in imaginary
skylights. But for too many people, dream homes remain just that-dreams. The reality of
owning their own home never seems to become theirs.

HUD would like to help. HUD, short for the U.S. Department of Housing and Urban
Development, is a government agency created to make the American dream of home ownership a
real possibility for everyone. And that includes you.

Since 1934, they've been putting Americans, millions of them, through the doors of their own
homes. they do it by making home buying easier and more affordable. You see, HUD owns
homes in many communities throughout the U.S., and offer them for sale at attractive prices and
economical terms.

So that home you've been dreaming about just may be one you buy from HUD. But whether you
decide on a HUD Home or not, you can use this guide to take you step by step through each
stage of finding and buying your own home.


Before you start shopping for a home, you need to know what kind of home to shop for. To
determine that, of course, you've got to figure out how much you can afford to pay each month.

Fortunately, there's a pretty simple formula for coming up with this number. It's the Federal
Housing Administration (FHA) formula that many mortgage lenders use. The FHA has found
that most people can afford to budget 29% of their gross monthly income to housing expenses,
depending on total debt. Buyers with no debt can budget as much as 41% of monthly income to

No need to reach for your calculator-we've done the math for you. The two charts on the opposite
page should tell you everything you need to know.

The first chart tells you how much 29% of your monthly income is. Find your annual income, or
a figure close to it, in the column at the left. Then read across to find out how much your
monthly gross income is, and finally, what 29% of that figure amounts to. This is approximately
how much you can spend on total housing costs each month.

The second chart tells you how much your monthly mortgage might be based on a home's selling
price. Remember to keep in mind that the monthly figure from this second chart is based on a
30-year fixed mortgage and includes monthly principal and interest payments only. Taxes and
insurance - which vary from community to community - are not included.

So if 29% of your gross income is, say, $604, that doesn't mean you can pay a $604-per-month
mortgage. You need to look at a mortgage somewhat below that, to leave room for taxes and
insurance. Be sure to ask your lender to help you estimate how much your total costs will be.

Annual Monthly 29%
Gross Gross of Gross
Income Income Income
$15,000 $1,250 $363
20,000 1,667 483
25,000 2,083 604
30,000 2,500 725
35,000 2,917 846
40,000 3,333 967
45,000 3,750 1,088
50,000 4,167 1,208

Monthly principal, interest payment for 30-year, fixed rate mortgage. Monthly taxes, insurance
not included.

Cost 6% 6.5% 7 % 7.58 8% 8.58 9% 9.5% 10%
25,000 150 158 166 175 183 192 201 210 219
30,000 180 190 200 210 220 231 241 252 263
40,000 240 253 266 280 293 308 322 336 351
50,000 300 316 333 350 367 384 402 420 439
60,000 360 379 399 420 440 461 483 505 527
70,000 420 442 466 489 514 538 563 589 614
80,000 480 506 532 559 587 615 644 673 702
90,000 540 569 599 629 660 692 724 757 790
100,000 600 632 665 699 734 769 805 841 878
110,000 660 695 732 769 807 846 885 925 965
120,000 719 758 798 839 880 923 966 1009 1053
130,000 780 822 865 909 954 1000 1046 1093 1141
140,000 839 885 931 979 1027 1076 1126 1177 1229
150,000 899 948 998 1049 1101 1153 1207 1261 1316
160,000 959 1011 1064 1119 1174 1230 1287 1345 1404
170,000 1019 1075 1131 1189 1247 1307 1368 1429 1492

It's time to stop talking about it and begin doing something about it.
Help is available.

You'll need someone to help you through the process of buying a home. That person should be
someone you trust, someone who understands what you want.
A good real estate agent is all of these things. He or she will be well-acquainted with all the
important things you'll want to know about a neighborhood you may be considering. The quality
of the schools, the number of children in the area, the safety of the neighborhood, traffic volume:
a real estate expert will be aware of these factors and more.

And all the financial details that can seem so mind-boggling to first-time home buyers are
something the agent deals with every day. He or she will help you figure the price range you can
afford, explain the advantages and disadvantages of different types of mortgages, guide you
through the paperwork, and be there to answer last-minute questions when you sign the final
papers at closing.

If you're buying a HUD Home, you're required to use a real estate agent. While purchasing a
HUD Home may be easier than many private real estate transactions, there are still some
requirements which must be met, certain forms that must be used, and procedures that must be
followed. But these requirements are clearly stated in advance, and the real estate agent will be
there to help you through it all.

There are no negotiations between buyer and seller when you buy a HUD Home. This can be a
real advantage. There's no haggling about price-everything is spelled out in black and white. In
some areas, a HUD office may accept a counter-offer from you, but if your counter-offer is not
accepted, the home goes back on the market. What's more, HUD responds promptly to your
offer, and if it's accepted, closing on the home will usually occur within 30 to 60 days.

Finding a HUD broker is not difficult, especially since so many real estate brokers are happy to
sell HUD Homes. All you need to do is to call a few brokers who work in the area you're
interested in and you'll find someone willing and experienced. Some brokers specifically
advertise their desire to sell HUD Homes in the real estate sections of newspapers.

Best of all, the valuable help you'll receive from the real estate agent is usually free! In most
instances, agents get their sales commission from the home seller, not you, the buyer. Even if
you're buying a HUD Home, HUD will pay the broker's commission.


Out of all the homes for sale in your area, there is likely to be one that has everything you want.
The trick is simply to find it.

Of course, your real estate agent is going to be a big help. But even the agent will need to know
what your priorities are. Is a short commute important to you? Or are schools your biggest
concern? How many bedrooms to you think you need?

Before you begin looking at homes, try to decide in advance exactly what you want. This can
save you and the agent a lot of time. It's a good idea to actually write down your wishes, and
share the list with your agent. This is helpful because he or she will usually have lists of the
properties for sale in your area, including all the HUD Homes. In some cities, newspapers carry
listings of HUD Homes, but this is not always the case. A broker should have all the information
you need.

Almost any home you look at will have room for improvement. But the more that needs to be
done to a home, the less you're going to have to pay for it. HUD Homes, because they're sold in
"as-is" condition, can often be a great, affordable opportunity for the fixer-upper. Many are in
fine neighborhoods and offer outstanding values. And while some HUD Homes do qualify as
"handyman specials," many are in very good condition.

HUD does not warrant the condition of its properties, but will give you the information it has
about the condition of the property you're interested in. You can use this information in
formulating your bid.

There's even a HUD loan program available, the 203(k), where buyers can borrow money to
make repairs on some properties. You repay these funds later, as part of your mortgage. Just be
aware that 203(k) funds aren't available for all houses in all areas. Ask the real estate agent you're
working with about 203(k) availability in your area.


Once you've found the home of your dreams, it's time to make an offer to buy it. Before deciding
how much to offer, HUD urges you to get a professional inspection. It can also be helpful to find
out how long the home has been on the market-if it's been for sale a while, the seller may be
more willing to bargain.

After you and the agent have prepared your offer, he or she will present it to the seller. It may
be accepted or rejected, or the seller may counter your offer by asking for a higher price or by
making changes in the sales contract.

Making an offer to buy a HUD Home is often much easier than the process of buying a home on
the private market. You'll submit your offer through a real estate broker, in the form of a sealed
bid using the HUD contract form. The person making the highest acceptable bid is generally
awarded that HUD Home.

Offers for HUD Homes can only be made through a licensed real estate broker. This way, HUD
requirements are met and buyers get the help they need. HUD will pay real estate commissions
of up to 6% if the commission amount is requested as part of the bid.

Sometimes HUD accepts an offer that's less than the listing price, depending on market
conditions and the length of time the property has been on the market. Sometimes buyers make
bids higher than the listing price, if they believe the market conditions demand it, or if the home
is particularly appealing.

You will generally make your offer for a HUD Home during a designated "Offer Period." At the
end of the l0-day offer period, all the bids received on the home will be opened at a public event
which you may attend. (Full-price offers are often opened immediately.) If your offer is
accepted, your broker will be notified, generally within 48 hours.

Earnest money When you make an offer on a home, the seller will usually require an "earnest
money" deposit as proof that your offer is serious. If the offer is accepted, your earnest money
deposit will become part of your down payment or closing costs. If your offer is rejected, the
broker will return your earnest money to you.

You're almost home.


Just as there is more than one kind of home, there is more than one way to finance it. Mortgage
lenders have come up with many different methods of helping you pay for a home - each one
with its own advantages and disadvantages.

First of all, you should know that HUD itself does not provide financing. You can obtain
financing through a bank or mortgage lender. And since many HUD Homes are eligible for
FHA-insured mortgage loans, this often makes financing easier to obtain. However, you are not
required to get an FHA loan to buy a HUD Home.
Fixed-Rate Mortgage With a fixed-rate mortgage, your interest rate stays the same for the term
of the mortgage, which is usually 30 years. Your principal and interest payment remains stable,
making it easier to plan a monthly budget. However, initial interest rates tend to be higher than
with other types of loans.

Adjustable-Rate Mortgage With an ARM, your interest rate and monthly payments start out
lower than with a fixed-rate, but your rate and payments can change either up or down,
depending on where interest rates in general are going. (If they're going up, your monthly
payments will probably go up as well, sometimes significantly.)

FHA-Insured Mortgage In this type of loan, the Federal Government insures the lender against
loss in case the home buyer defaults on the loan. This program was set up so that Americans
who can't afford the 10% to 20% down payment required by most lenders can still buy a home.
Many HUD Homes can be bought with FHA-insured mortgages, which allow you to purchase
the home with as little as 3% down. You do not have to be a first-time buyer in order to qualify
for an FHA loan.

VA Loan Under this program, the Department of Veterans Affairs guarantees the lender against
loss. HUD Homes may be purchased with a VA loan or any other loan.

Assumable or Non-Assumable You may find a home with a mortgage loan you can "assume"
from the previous owner. This means that the lender is willing to transfer the old loan on the
home to you. These loans can be wonderful bargains, and the paperwork is usually not very

Before you decide which loan is right for you, talk to your loan officer. You'll get information
that will help you figure out which option best suits your needs.


The costs of buying a home are more than just the price you agree to pay for it. Before you move
in, you'll have to pay various charges, which we explain below. The good news is, with HUD
Homes these costs may be lower than they are with other homes.

Down Payment Most people know that a down payment is a percentage of the price of the home
that must be paid up front, in cash. Many people don't know that HUD can reduce that down
payment from the normal 10% to 20% to a much more agreeable figure of 3%, or even less! On
a $50,000 home, that means $1,500 versus $5,000 or $10,000.

Closing Costs This term covers various fees your lender charges for providing your loan, and
other expenses. Closing costs typically add up to about 3% or 4% of the price of your home,
depending on where you purchase it. But when you buy a HUD Home, these costs are often
picked up by HUD-if they are specifically requested, by dollar amount, in the sealed bid
offering. If you buy a HUD Home, HUD may pay many of your usual and customary closing
expenses plus real estate sales commissions up to 6%. Just remember that closing costs and sales
commissions are deducted from the bid amount in making the decision as to which offer brings
the greatest return to HUD. Since bidding is competitive, you may, in order to offer a more
competitive bid, pay your own closing costs. This makes HUD's net return greater, making your
bid more favorable and increasing the likelihood that HUD will accept your offer.

Commissions These are paid to the broker by the seller, and usually amount to 6% or 7% of the
cost of the house. When you buy a HUD Home, the selling agent's commissions are usually paid
by HUD. HUD will pay a total sales commission of up to 6%.


Before you buy anything, you'll want to know exactly what it is you're getting. With something
as important as your home, you can't know too much. That's why it's a good idea to get a
professional inspection of your home-even before you make the offer. HUD strongly urges every
home buyer to get a professional inspection, whether you're buying a HUD Home or not. HUD
Homes are sold in "as-is" condition. That means you agree, if you buy the home, to accept it in
its present condition. HUD does not pay for the correction of defects in existing homes that it
sells or on homes purchased with FHA-insured mortgages. The owner of the home will be
responsible for needed repairs. Therefore, be sure of the condition of the home before you submit
your offer.


The day you finally close on your new home will probably be one of the most exciting in your
life. Finally, the long, tedious process of finding a home and getting a loan is over, and by the
time the day is done, you'll be the proud and happy owner of your new home.

Before that day ends, you will be asked to sign a seemingly endless number of forms, but the
closing agent will go over each one with you. It's all necessary, but you can make it a little easier
by asking the real estate agent about it before the big day comes. Also, when you apply for your
loan, your lender is required to give you a booklet explaining closing costs, an estimate of how
much cash you'll have to supply at the closing, and a list of all the documents you'll need.
If you have any questions, perhaps they are answered in the "Q and A" section that follows. If
not, why not go straight to the phone right now, and call a real estate agent and ask about HUD
Homes? It's a small, first step. But the journey could eventually end at the door to a home you
call your own. Good luck and have fun!


What is a HUD Home?

A HUD Home may be a single-family house, a town home, condominium or other type of
residence. The properties were deeded to HUD/FHA by mortgage companies who had
foreclosed on FHA-insured mortgage loans. Now HUD must sell these homes-as quickly as
possible at market value-in order to obtain the maximum financial return on its mortgage
insurance funds.

Who can buy a HUD Home?

Anyone who has the money or can qualify for the necessary amount of mortgage financing can
purchase a HUD Home. You do not have to be low-income or meet any other such limitations.

Can I get a HUD Home for free, or for one dollar?

No. HUD acquires its properties through the foreclosure of FHA insured mortgages. One of
HUD's many missions is to maximize return to the FHA insurance fund, which it does by selling
the properties at fair market value.

How do I buy a HUD Home?

Our policy is to market acquired properties on a competitive basis with sealed bid offers being
submitted through any participating licensed real estate broker. Local brokers will assist you in
the transaction. They can show the property to prospective buyers, as well as answer questions
and provide information on the location of parks, schools, shopping, and employment centers.

Are HUD Homes meant for low income people?

HUD Homes come in a variety of price ranges, though most are affordably priced, making them
accessible to low and moderate income Americans.

What are the income requirements?
If you make a cash purchase, there are no income requirements. Otherwise, you must be able to
qualify for a particular type of mortgage financing based on established mortgage lending

How does HUD decide how much to charge for a HUD Home?
The listing price of a HUD property is HUD's estimate of its fair market value. HUD established
value by comparing HUD properties to similar properties sold within the community in the
previous six-month period.

Can investors purchase HUD Homes?
Yes. However, HUD offers its properties to owner/occupants for a period
before making them available to investors.

What happens if I can't close the sale within the time permitted by HUD?

You'll probably have to pay fees for an extension of time, usually in increments of 15 days.

Is there any way for me to get advanced notice about homes that will be coming up for sale?

No. The only way to find out about HUD Homes for sale is to look in the listings in your
newspaper (if it carries HUD listings), or ask your broker.


HUD has initiated a nationwide effort to alert home buyers with young children to the hazards of
older homes that may contain lead-based paint. If you are making an offer on a home
constructed prior to 1978, you should be aware that there may be lead-based paint on the
premises. The broker will give you a copy of an information brochure entitled "Watch Out For
Lead Paint Poisoning." You must also submit a lead-based paint addendum with your offer on
the HUD Home.


Adjustable Rate Mortgage (ARM). A type of mortgage rate loan whose interest rate changes
periodically up or down, usually once or twice a year.

Annual Percentage Rate (APR). Everything financed in your mortgage loan package (interest,
loan fees, points or other charges) expressed as a percentage of the loan amount (usually slightly
above the actual interest rate alone.)

Assumable Loan. A loan in which the lender is willing to "transfer" from the previous owner of
the home to the new owner, sometimes at the same interest rate, sometimes at a new rate. An
assumable loan can make your home more attractive to buyers when you want to sell.

Closing Costs. Costs the buyer must pay at the time of closing in addition to the down payment:
including points, mortgage insurance premium, homeowners insurance, prepayments for property
taxes, etc. Closing costs average 3%-4% of the loan amount. If you're buying a HUD Home, you
can request they be paid by HUD.

Contingency. A condition put on an offer to buy a home; such as the prospective buyer making
an offer contingent on his or her sales of a present home.

Conventional Mortgage. A type of mortgage not insured by either the Federal Housing
Administration (FHA) or the Department of Veterans Affairs (VA), and thus usually requiring a
10%-20% down payment. Homes may be purchased with a conventional mortgage.

Earnest Money. Funds submitted with an offer to show "good faith" to follow through with the
purchase. Earnest money is placed by the broker
in an escrow/trust account until closing, when it becomes part of the
down payment of closing costs. (HUD generally requires an earnest money deposit of $500-

Escrow. A procedure in which documents or transfers of cash and property are put in the care of
a third party, other than the buyer or seller.

FHA Financing. Financing for a loan which will be insured against loss by the Federal Housing
Administration-a part of the U.S. Department of Housing and Urban Development (HUD). Such
financing only requires a 3%-5% down payment.

Homeowners Insurance. Insurance that protects the homeowner from "casualty" (losses or
damage to the home or personal property) and from "liability" (damages to other people or
property). Required by the lender and usually included in the monthly mortgage payment.

Loan Origination Fee. A fee charged by the lender for evaluating, preparing, and submitting a
proposed mortgage loan.

Mortgage Insurance Premium (MIP). A charge paid by the borrower (usually as part of the
closing costs) to obtain financing, especially when making a down payment of less than 20% of
the purchase price, for example on an FHA-insured loan.

Point. An amount equal to 1% of the principal amount being borrowed. The lender may charge
the borrower several "points" in order to provide the loan.

Property Taxes. Taxes (based on the assessed value of the home) paid by the homeowner for
community services such as schools, public works, and other costs of local government. Paid as
a part of the monthly mortgage payment.

Title Insurance. Protects lenders and homeowners against loss of their interest in property due to
legal defects in the title.

VA Loan. A loan guaranteed by the Department of Veterans Affairs against loss to the lender,
and made through a private lender. (HUD Homes may be purchased with a VA loan.)
This publication is designed to provide accurate and
authoritative information with regard to the subject matter
covered. It is sold with the understanding that the publisher
is not engaged in rendering legal, accounting, or other
professional advice. If legal advice or other professional
assistance is required, the services of a competent
professional person should be sought.


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