Benefits of buying an FHA Foreclosure
- No Appraisal required
- Instant equity
- Flexible Credit requirements
- Low money down.
- HUD will pay all closing costs. (Up to 5% in some states)
If the house you are interested in is a Housing and Urban Development (HUD) foreclosure, then it was last purchased with an Federal Housing Administration (FHA) mortgage. The Federal Government insured the loan, making the previous FHA loan possible. By insuring the loan the Federal Government agrees to repay the Lender for all money lost by the lender in case the property is foreclosed on. It's a good deal for the Lender as their investment is 100% insured. The Federal Government protects itself by collecting on each transaction of a federally financed property a Mortgage Insurance Premium (MIP) at the time of purchase. The MIP is 2.25% of the mortgage amount and is helpful in several ways.
Because the MIP is charged, the FHA can allow a purchaser to reduce their initial out of pocket cash expenditure from 5% to 3% of the purchase price, making it possible for many more Americans to buy homes. HUD reports in their mission statement that home ownership for the majority of Americans is their goal and that has proven to be the driving force behind their decisions and directives since their inception.
The MIP is pooled with all the other premiums and allows the Federal Government to continue helping homebuyers save money on their homes by keeping the costs down for homebuyers.