With housing prices soaring, finding an affordable place to call home can be challenging. One option to explore is HUD homes, which are often sold for less than their market value. But what is a HUD home, and how can you determine whether it’s the right choice for you? Here’s what to know. Key takeaways
Buying a home through the HUD (Housing and Urban Development) program can be an affordable way to achieve homeownership. HUD provides properties at discounted prices to eligible buyers. However, you may be wondering – what credit score is needed to buy a HUD home?
The good news is that HUD has more flexible credit requirements than conventional mortgages. Here is a complete guide on HUD home credit score requirements and how you can qualify for this great opportunity.
What are HUD Homes?
First, let’s start with an overview of the HUD home program. HUD acquires properties when a borrower with an FHA-insured mortgage defaults. HUD then sells these homes at a discount to recoup their losses.
The benefits of HUD homes include
- Lower prices – HUD homes can be purchased below market value
- Sweat equity – Many homes need repairs/renovations, allowing buyers to add value through DIY projects
- FHA financing – HUD homes can be purchased with FHA loans that require lower down payments
HUD offers both single-family homes and multi-family properties. There is sometimes limited inventory available, so buyers need to act fast when a desirable home hits the market.
HUD Home Credit Score Requirements
Now let’s discuss the all-important question – what credit score is required for a HUD home purchase?
The minimum FHA credit score is just 500. Yes, you read that correctly! With a score of 500 or higher, you can qualify for an FHA loan and buy a HUD property.
However, here are some important caveats:
- 500-579 – You must make a 10% down payment
- 580+ – You only need 3.5% down
So while a 500 credit score meets the minimum requirement, a higher score above 580 will make the process easier with a lower down payment.
Tips for Improving Your Credit Score
If your credit score falls below 580, there are several steps you can take to boost it:
- Check credit reports for errors and dispute inaccuracies
- Pay down debts, especially balances on credit cards
- Become an authorized user on someone else’s credit account
- Limit new credit applications while house hunting
With some diligent work, you may be able to increase your score enough to qualify for the 3.5% down payment tier.
Other Factors in HUD Loan Approval
While your credit score is important, lenders also look at other criteria when approving a HUD loan:
- Debt-to-Income Ratio – Below 43% is ideal, but some lenders may allow up to 50%.
- Down Payment – 10% if 500-579 credit score; 3.5% if 580+ score.
- Employment History – Lenders want to see at least 2 years of stable income.
- Savings and Assets – Cash reserves for closing costs/repairs strengthen your application.
Meeting these requirements in addition to an acceptable credit score will boost your chances of successfully purchasing a HUD property.
Finding the Right HUD Home
Once you’ve met the minimum credit score and other criteria, it’s time to start searching for available HUD homes. Here are some tips:
- Browse HUD’s home listings at HUDHomeStore.com
- Partner with a real estate agent experienced in HUD transactions
- Find HUD-approved lenders familiar with program requirements
- Be ready to act quickly once you find a home you like
HUD homes are in high demand, so having financing pre-approval and acting quickly on a property can give you an edge over other buyers.
Buying a HUD Home With Bad Credit Can Work
While HUD does have credit requirements, they are much more flexible than conventional loans. This makes HUD homes an excellent option for budget-conscious buyers with less-than-perfect credit.
With some effort to boost your credit score along with a savvy real estate agent and lender on your side, you can potentially buy a HUD property even with a 500 credit score. The key is understanding the criteria, improving your credit, and acting fast when you find the right discounted home.
Homeownership could be within your reach sooner than you thought with the HUD program. Now that you know the key credit score requirement, you can start mapping out a path to purchasing your dream HUD property.
Close on the home
The closing process is similar to that of a standard home sale and involves paying closing costs and finalizing the loan paperwork. It’s smart to get a professional inspection to make sure there are no major problems with the property.
Submit a bid
Your real estate broker will submit the bid on the HUD home on your behalf. Owner-occupant buyers are prioritized during the bidding process — real estate investors must wait until the initial bidding period is over to submit their bids.
What Credit Score Is Needed To Buy A HUD Home? – CountyOffice.org
FAQ
How hard is it to get a HUD loan?
Do you have to have good credit for HUD housing?
Here’s the good news: Your eligibility to receive government subsidies for housing is NOT based on your credit score, and will NOT be affected by it.
Is it hard to buy a HUD home?
Anyone can purchase a HUD home if they can secure financing through personal funds or a mortgage. If you’re interested in buying a foreclosed home, a HUD home is an option you may want to consider.
What is the minimum down payment for a HUD home?
Buying your first home? FHA might be just what you need. Your down payment can be as low as 3.5% of the purchase price.
What credit score do you need to buy a HUD home?
There is no minimum credit score required to participate in the HUD $100 Down Program, but you will need to meet the credit requirements of the lender you work with. In general, lenders will require a credit score of at least 580 to qualify for an FHA loan, which is often used to finance HUD-owned homes. Can you offer a lower price for a HUD home?
What credit score do you need for a home loan?
Some loans require a 620 credit score, some require a 540 credit score or no credit score at all. Guild Mortgage will consider applicants who don’t have a FICO credit score by looking at non-traditional credit sources, such as on-time rent, medical or utility bill payments.
What is a good credit score to buy a house?
A favorable credit score to buy a house is typically in the high 600s and 700s. Anything higher than that is considered “exceptional”, and helps borrowers get the very best mortgage rates. Certain loan types even allow you to buy a house with a credit score as low as 500.
What are the requirements for a HUD loan?
HUD loans, more commonly referred to as FHA loans, have requirements that apply to both the borrower and the property itself. Here are some of the requirements that borrowers must meet: When you’re buying a home with a HUD loan, the property must be up to standard with the FHA’s requirements.
What credit score do I need for HUD $100 down program?
Credit score requirements: While there is no minimum credit score required to participate in the HUD $100 Down Program, you will need to have a credit score that meets the lender’s requirements. This means that you should have a good credit history and a score of at least 580 to be considered eligible.
What is a good FHA credit score?
If your score is 760 or higher, you should qualify for the best interest rates. Insured by the Federal Housing Administration, FHA loans only require a score of 500 if you can put 10% down. If you have a score of 580 or better, however, you can put down just 3.5%.