HUD classifies its property buyers into two categories: 1) owner-occupant buyers and 2) investors.
An owner-occupant is a person that will live in the home as his or her primary residence within 30 days of the close of escrow. An investor is essentially everybody else—people looking to buy real estate as an investment, someone looking for a second home or someone who does not qualify as an owner-occupant.
Before someone is eligible to purchase a HUD home, he or she must be pre-approved for a real estate loan or have the cash on hand to purchase the property. Pre-approval is a conditional approval given by a mortgage lender after a formal loan application has been taken and the lender has verified the information provided by the borrower (such as employment, assets, income, credit, etc.).
Though HUD does not provide financing for its properties, HUD does not restrict home buyers from the type of financing for a HUD home either. Common types of mortgages used to financing a HUD home include:
Fixed-rate mortgages. A fixed-rate mortgage is a loan that has a set annual interest rate for either 15 or 30 years. As a result, the borrower has a set payment that does not change over the life of the loan.
Adjustable-rate mortgages. Unlike fixed-rate mortgages, adjustable-rate mortgages (or ARMs as they are commonly referred to) have a fluctuating interest rate that moves with current market conditions. The rate may change once a year, twice a year or even once a month, depending upon the type of ARM. Though this type of loan makes it harder for the home buyer to budget his or her payments each month, it does allow consumers to take advantage of lower interest rates as the rates decrease.
FHA insured mortgages. FHA home loans are loans provided by mortgage lenders that are insured by the Federal government. As a result, many people who may not otherwise qualify to purchase a home can do so with as little as 3% down on a home. This type of loan is open to any home buyer that will live in the home as a primary residence.
VA home loans. The Department of Veteran Affairs (VA) offers guaranteed loans for qualifying members of the armed services, people that had served in the military, or veterans of military. The borrower can finance up to 100% of the purchase price.
Though this list is just a small sample of the types of loans available to home buyers, it is important for any buyer to explore his or her options with the lender.
However if the buyer is a cash buyer, the buyer only needs to provide sufficient evidence to show that he or she has enough cash to purchase the home. Sufficient evidence that a buyer should provide includes a bank statement, deposit slip or a letter signed by the bank verifying how much is on deposit.
