HUD homes are homes acquired by the U.S. Department of Housing and Urban Development. The properties are usually single family residences or condos and can be in different states of disrepair.

In general, HUD homes attract a wide range of potential home buyers. Investors flock to HUD homes in order to find a property that can be fixed up and resold at a higher price. Teachers and police officers have the opportunity to purchase HUD homes at 50% off the sales price. Other home buyers are drawn to HUD homes because they are looking for a home that is below market value and realize that they can buy a larger home than they would normally qualify to purchase.

If you are a First Time Buyer, it is advisable that you work with somebody who has dealt with purchasing a HUD home in the past. Most notably if you are working with a Realtor, make sure they have been through the process. HUD homes are generally sold "as is", meaning they do not warrant the condition and very rarely fix anything.

Also, HUD requires that all bidders must be pre-aproved to purchase the home. In other words, if you are looking to finance the property, you must make application and have a conditional loan committment from a qualified lender, unless you plan on paying cash for the property.

If you are paying "all cash" for the property you will need to provide HUD sufficient evidence to show that he or she has enough cash to purchase the home. Sufficient evidence that HUD may ask for includes a bank statement, deposit slip, or a letter signed by a banker.

The United States Department of Housing and Urban Development (HUD), is the federal agency that oversees the resale of "HUD Homes". HUD homes refer to foreclosed properties that were conveyed to HUD when a homeowner failed to make payments on their FHA insured mortgage. Many times the people that were foreclosed make significant damage to the homes before they vacate the property. Others leave the homes in pristine condition.

In 1965, the Department of Housing and Urban Development (HUD) was formed. Within HUD operates the Federal Housing Administration (FHA), which has the primary responsibility for administering the government home loan insurance program. This program allows buyers who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA who insures the loan for the lender.

The most popular FHA home loan program by far is the 203(b). This is your standard fixed rate loan for 1-4 faily owner occupied houses and only requires a minimum of 3% from the borrower. This loan also permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency.

The main advantage to a FHA home loan is that the credit criteria for a borrower are not as strict as Conventional Loans sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC). Someone who may have had a few credit problems or no traditional credit should not have a problem obtaining FHA financing. Also, FHA home loans are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new loan. In addition, the seller or lender must pay for part of the "traditional" closing costs (called non-allowable costs) while a borrower's allowable costs can partially be wrapped into the loan. The mortgage insurance premium is cheaper for an FHA loan versus a conventional loan with 3% down. Finally, FHA loans mayrequire less income to qualify as they will exceed he Conventional debt ratios of 28/36% as their standard 29/41%.

The greatest disadvantage of FHA home loans is that FHA limits the loan size that a borrower can borrow. Please see the link for FHA Loan Limits in your area, Others may try and convince you that the FHA upfront mortgage insurance premium (MIP) is a disadvantage. However, this amount makes just a very small increase in the borrowre's monthly payment and is partially refundable.

In order to qualify for an FHA loan, all income must be analyzed to ensure that it is sufficient to cover the mortgage and other obligation of the borrower. Also, the stability and likelihood of continuance must also be analyzed. Income from any source that cannot be verified, is not stable, or will not continue may not be used in calculating the borrower's income ratios.

Debt Ratios are the relationship between ones income and ones expenses. Ratios are generally expressed as two numbers like 29 over 41 or 29/41. These are standard FHA ratios. The first number, the 29, represents the relationship between the borrower's income and his new housing expense of principal, interest, tasex, insurance, and homeowner duties. A borrower who makes $3,000 per month and has ahousing expense of $870 would have 29% top end ratio.

The other number of 41% represents the total monthly debt, including the housing expense and all other debt such as credit cards, loans, child support, etc. Thus in our example of the borrower that makes $3,000 per month and had a total expense of $1,230, would have 41% bottom ratio.

With the use of automated approvals, a borrowerls ratios can exceed the guidelines above. Also, with compensating factors a borrower may be able to exceed the ratio guidelines.

HUD does impose an arbitrary minimum length of time a borrower must have held a position to be eligible. However, the lender must verify the borrower's employment for the most recent two full years. If a borrower indicates he orshe was in school or in the military during any of this time, the borrower must provide evidence supporting this such as college transcripts or discharge papers. The borrower must also explain any gaps in employment of a month or more.

Allowances for seasonal employment, such as is typical in the building trades, etc,. may be made.

The lender or underwriter is looking to show a steady source of constant earnings. Borrowers with frequent job changes generally show a lack of stability. Also, large swings or changes in income will also lead an underwriter to question the stability of the income. A borrower who changes jobs frequently within the same line of work, but continues to advance in income or benefits should be considered favorably.

In analyzing a borrower's credit, past credit performance serves as the most useful guide in determining the attitude toward credit obligations. A borrower who has made payments on previous or current obligations in a timely manner represents a reduced risk. Conversely, if the credit history, despite adequate income to support obligations, reflects continuous slow payments, judgements, and delinquent accounts, strong compensating factors will be necessary to approve the loan.

When an underwriter looks at a borrower's credit record, it is the overall pattern of credit behavior that must be examined rather than isolated occurrences of unsatisfactory or slow payments. If a borrower had a period of financial difficulty in the past, this does not necessarily mean that the loan will be denied, particularly if a good payment record has been maintained since.

When delinquent accounts are revealed, the underwriter is looking to determine if the cause of the lates is due to financial mismanagement or extenuating circumstances.

Most underwriters will ignore minor derogatory information occurring two or more years ago. However, major indications of derogatory credit, including judgements and collections, and any other recent credit problems, require sufficient written explanation from the borrower. The borrower's explanation must make sense and be consistent with other credit information in the file.

The basic hierarchy of credit evaluation is the manner of payments made on previous housing expenses, including utilities, followed by the payment history of installment debts then revolving accounts.

Generally, an individual with no late housing or installment debt payments should be considered as having an acceptable credit history unless there is a major derogatory credit on his or her revolving accounts.

FHA loans are the easiest type of real estate mortgage loan to qualify. The qualifications are the most flexible of all mortgage loans that require low down payment

Following is the basic FHA loan qualification guidelines.

• Two Years of steady employment, preferably with same employer.
• Last two years income should be the same or increasing
• Credit report should typically have less than two thirty day lates
• Bankruptcy's must be at least two years old, with good credit since.
• Foreclosure's must be at least three years old, with good credit since.
• Your new mortgage payment should be approximately 30% of your income.

In addition to your income, a lender will look at your minimum monthly calculate your debt ratios. The debt ratio's is what will determine "how can afford

Following are the two types of debt ratio's that will be use:

• Front-End Ratio - this is your gross income divided by the new payment. this standard guideline is 29%
• Back-End Ratio - this is your gross income divided by the new payment and also your minimum monthly payments from your lia standard guideline is 41%

Following is the typical debts used to determine your qualifying ratio's:

Front-End Ratios

• your current and or future house payment

Back-End Ratios - the minimum required monthly payments on the following:

• Auto Loans - (except if there is less than 9 months to pay off)
• Student Loans - (except if there is less than 9 months to pay off)
• Personal Loans - (except if there is less than 9 months to pay off)
• Charge Cards - minimum required payments only.
• Child Support - (except if there is less than 9 months to pay off)
• Alimony - (except if there is less than 9 months to pay off)
• Federal Tax Lien Repayment Schedules - (except if there is less than 9 months calculated)

Following are monthly liabilities that are not used to calculate debt

• Utility Bills
• Car & Health Insurance
• Cell Phone Bills

The percentage of debts to income is called the debt-to-income (a.k.a ratios. A good goal is to spend no more that 38% of your income on including house payment. however, under FHA home loan guidelines to spend up to 41% of your monthl income on housing and other del of your application shows you can handle it.

An example of the income to debt calculation is as follows

Income = $3,000

New Mortgage Payment = $900

Minimum Monthly Payments = $300

"Mortgage" divided by "Income" = 30 %

"Mortgage + Monthly Payments" divided by "Income" = 40%

In this scenario, your front-end is 30% and back-end is 40% which is acceptable for a FHA Loan

These ratios can also be adjusted or exceeded if there are item(s) you c interest the interest rate, lower the loan amount, etc.

FHA is the most flexible lender regarding debt ratio's. Never rule yourself out of buying a home until you have spoken to a mortgage professional.

The most important thing to understand is that the loan approval process is dependant on your documentation. To insure a smooth transaction, it that you have all of your documents gathered prior to your initial loan. following is a list of all the documents you will need. Please feel free and use this as a checklist.

Employment Information

• Most recent two years complete tax returns with all schedules.
• Most recent two years W-2's, 1099's, etc.
• Most recent pay stubs covering one month period.
• If Applicable: Self-Employed will need Three years Tax Returns & Loss Statements.

Savings Information

• Most recent three months complete bank statements for any an with all pages.
• Most recent statement from retirement, 401k, mutula funds, mo stocks, etc.

Credit Information

• Most recent statements from your bills, indication minimum payment and account numbers.
• Name, Address, and Phone number of your landlord, or 12 months rent checks.
• If Applicable: Should you have no credit. Copies or your most rre will be needed
• If Aplicable: Copy of complete Bankruptcy and Discharge Papers.
• If Applicable: If you co-signed for a mortgage, car, credit card, etc.months cancelled checks. front and rear, indication you are not payments.

Personal Information

• Copy of Drivers License
• Copy of Social Security Card.

FHA has designed its program to assist people to purchase homes as existing mortgages. Therefore the income qualifying guidelines are traditional Fannie Mae and Freeedie Mac Conventional Home Loans.

One of the first questions we will ask will consider is how much of your you will spend on housing. This information helps the lender decide comfortably afford a home.

When you are qualifying for a loan, we will use your gross income. the money you earn before taxes, including overtime, commissions, any other sources - as long as you can show a steady two year history sources.

Your monthly housing expense as a percentage of your monthly income housing expense (a.k.a.: front-end) ratio. FHA suggests to spend about income n your house payment (including the mortgage, property tax, insurance and hazard insurance.

Calculate what your new monthly mortgage payment should be by using:

Gross Monthly Income multiplied by 29% = Mortgage Payment

Sometimes you have to stretch that percentage when you buy a house one of the benedits of easier qualifyint FHA home loans. To qualify, you spend up to 35% of your income on your house payment, as long as in your application shows that you can handle the "stretch."

One important thing FHA will do is compare your housing expense not the expense you'll have if you buy a home. The smaller the increase, the better the application looks.

Following is a description of the normal non-recurring closing costs. These fees are typically paid by the buyer or owner. It may be negotiated part of these fees may be paid by the home seller or lender.

801. Loan Origination: This fee is usually known as a loan origination sometimes is called a "point" or "points." It covers the lender's admini processing the loan. FHA regulates this fee to a maximum of 1% of the Often this is expressed as a percentage of the loan. Generally, the b fee, unless otherwise negotiated.

802. Loan Discount: Also often call "points" or "discount points," a one-time charge imposed by the lender or broker to either lower the the lender or broker would otherwise offer the loan to you or may be the interest rate for an extended period. This fee may vary.