When people are shopping around for a new home, they must also shop around for home loans. There are a variety of different home loans offered by banks and financial institutions, but one of the more popular types of loan is a HUD loan. Since the housing market crashed, many potential home buyers are looking into obtaining a HUD loan, because it can be more benefical to them.
What is a HUD loan?
Overview of a HUD loan A HUD loan comes from the Department of Housing and Urban Development, and this department does an excellent job with encouraging homeownership for many families. A HUD loan is focused towards high-risk borrowers, which are those borrowers with a bad credit history and bad financial history. A HUD loan is an insured mortgage loan which helps many banks and financial institutions feel comfortable to loan money to high-risk borrowers. Benefits of a HUD loan A HUD loan offers a wide range of benefits, not only to the borrower but to the banks and financial institutions also. Since HUD loans are federally insured by the government, it allows mortgage lenders to feel safe loaning money to people who would have otherwise been denied, because HUD loans have very low risk associated with them. Allowing people with poor credit histories the opportunity to obtain home mortgages helps them to rebuild their credit, and give them a chance to have a fresh financial start.
What makes a HUD loan different than a conventional loan?
FHA insured One of the biggest differences with a HUD loan and a conventional loan is that HUD loans are backed by the Federal Housing Administration (FHA). If a mortgagee defaults on a HUD loan, the government is required to pay the mortgage lender, and this is why HUD loans appeal to many lenders because they are going to get paid regardless of what happens with the loan. Down payments The down payment on a HUD loan is much less than the down payment on a conventional loan. On a HUD loan, the down payment is only 3.5% of the purchase price is a reasonable amount which many borrowers can come up with, compared to the down payment of a conventional loan which ranges from 10% to 20% of a home’s purchase price.