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Another page taken from a government source.

                       The HUD Home Buying Guide.

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Owning a home of your own.

Your dream home could be a HUD Home.

Almost everybody has a dream home.  A place they like to wander through
in their thoughts, choosing imaginary wallpaper and putting in imaginary
skylights.  But for too many people, dream homes remain just
that-dreams.  The reality of owning their own home never seems to become

We at HUD would like to help.  HUD, short for the U.S. Department of
Housing and Urban Development, is a government agency created to make
the American dream of home ownership a real possibility for everyone.
And that includes you.

Since 1934, we've been putting Americans, millions of them, through the
doors of their own homes.  We do it by making home buying easier and
more affordable.  You see, HUD owns homes in many communities throughout
the U.S., and we offer them for sale at attractive prices and economical

So that home you've been dreaming about just may be one you buy from
HUD.  But whether you decide on a HUD Home or not, you can use this
guide to take you step by step through each stage of finding and buying
your own home.

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How much home can you afford?

Before you start shopping for a home, you need to know what kind of home
to shop for.  To determine that, of course, you've got to figure out how
much you can afford to pay each month.

Fortunately, there's a pretty simple formula for coming up with this
number.  It's the Federal Housing Administration (FHA) formula that many
mortgage lenders use.  The FHA has found that most people can afford to
budget 29% of their gross monthly income to housing expenses, depending
on total debt.  Buyers with no debt can budget as much as 41% of monthly
income to housing.

No need to reach for your calculator-we've done the math for you. The
two charts on the opposite page should tell you everything you need to

The first chart tells you how much 29% of your monthly income is. Find
your annual income, or a figure close to it, in the column at the left.
Then read across to find out how much your monthly gross income is, and
finally, what 29% of that figure amounts to. This approximately how much
you can spend on total housing costs each month.

The second chart tells you how much your monthly mortgage might be based
on a home's selling price.  Remember to keep in mind that the monthly
figure from this second chart is based on a 30-year fixed mortgage and
includes monthly principal and interest payments only. Taxes and
insurance - which vary from community to community - are not included.

So if 29% of your gross income is, say, $604, that doesn't mean you can
pay a $604-per-month mortgage.  You need to look at a mortgage somewhat
below that, to leave room for taxes and insurance.  Be sure to ask your
lender to help you estimate how much your total costs will be.

                Annual        Monthly           29%
                Gross         Gross             of Gross
                Income        Income            Income

                $15,000       $1,250            $363
                 20,000        1,667             483
                 25,000        2,083             604
                 30,000        2,500             725
                 35,000        2,917             846
                 40,000        3,333             967
                 45,000        3,750           1,088
                 50,000        4,167           1,208

Mortgage payment calculator.

Monthly principal, interest payment for 30-year, fixed rate
mortgage.  Monthly taxes, insurance not included.

Cost       6%    6.5%   7%     7.5%  8%    8.5%  9%    9.5%  10%

$25,000  $ 150   158    166    175   183   192   201   210   219
$30,000  $ 180   190    200    210   220   231   241   252   263
$40,000  $ 240   253    266    280   293   308   322   336   351
$50,000  $ 300   316    333    350   367   384   402   420   439
$60,000  $ 360   379    399    420   440   461   483   505   527
$70,000  $ 420   442    466    489   514   538   563   589   614
$80,000  $ 480   506    532    559   587   615   644   673   702
$90,000  $ 540   569    599    629   660   692   724   757   790
$100,000 $ 600   632    665    699   734   769   805   841   878
$110,000 $ 660   695    732    769   807   846   885   925   965
$120,000 $ 719   758    798    839   880   923   966   1,009 1,053
$130,000 $ 780   822    865    909   954   1,000 1,046 1,093 1,141
$140,000 $ 839   885    931    979   1,027 1,076 1,126 1,177 1,229
$150,000 $ 899   948    998    1,049 1,101 1,153 1,207 1,261 1,316
$160,000 $ 959   1,011  1,064  1,119 1,174 1,230 1,287 1,345 1,404
$170,000 $1,019  1,075  1,131  1,189 1,247 1,307 1,368 1,429 1,492

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It's time to stop talking about it and begin doing something about it.

Help is available.

You'll need someone to help you through the process of buying a home.
That person should be someone you trust, someone who understands what
you want.

A good real estate agent is all of these things.  He or she will be
well-acquainted with all the important things you'll want to know about
a neighborhood you may be considering.  The quality of the schools, the
number of children in the area, the safety of the neighborhood, traffic
volume:  a real estate expert will be aware of these factors and more.

And all the financial details that can seem so mind-boggling to
first-time home buyers are something the agent deals with every day.  He
or she will help you figure the price range you can afford, explain the
advantages and disadvantages of different types of mortgages, guide you
through the paperwork, and be there to answer last-minute questions when
you sign the final papers at closing.

If you're buying a HUD Home, you're required to use a real estate agent.
While purchasing a HUD Home may be easier than many private real estate
transactions, there are still some requirements which must be
met-certain forms that must be used, and procedures that must be
followed.  But these requirements are clearly stated in advance, and the
real estate agent will be there to help you through it all.

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There are no negotiations between buyer and seller when you buy a HUD
Home.  This can be a real advantage.  There's no haggling about
price-everything is spelled out in black and white.  In some areas, a
HUD office may accept a counter-offer from you, but if your
counter-offer is not accepted, the home goes back on the market.  What's
more, HUD responds promptly to your offer, and if it's accepted, closing
on the home will usually occur within 30 to 60 days.

Finding a HUD broker is not difficult, especially since so many real
estate brokers are happy to sell HUD Homes.  All you need to do is to
call a few brokers who work in the area you're interested in and you'll
find someone willing and experienced.  Some brokers specifically
advertise their desire to sell HUD Homes in the real estate sections of

Best of all, the valuable help you'll receive from the real estate agent
is usually free!  In most instances, agents get their sales commission
from the home seller, not you, the buyer.  Even if you're buying a HUD
Home, HUD will pay the broker's commission.

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There's a HUD Home with your name on it.

Out of all the homes for sale in your area, there is likely to be one
that has everything you want.  The trick is simply to find it.

Of course, your real estate agent is going to be a big help.  But even
the agent will need to know what your priorities are.  Is a short
commute important to you?  Or are schools your biggest concern?  How
many bedrooms to you think you need?

Before you begin looking at homes, try to decide in advance exactly what
you want.  This can save you and the agent a lot of time.  It's a good
idea to actually write down your wishes, and share the list with your
agent.  This is helpful because he or she will usually have lists of the
properties for sale in your area, including all the HUD Homes. In some
cities, newspapers carry listings of HUD Homes, but this is not always
the case.  A broker should have all the information you need.

Almost any home you look at will have room for improvement.  But the
more that needs to be done to a home, the less you're going to have to
pay for it.  HUD Homes, because they're sold in "as-is" condition, can
often be a great, affordable opportunity for the fixer-upper.  Many are
in fine neighborhoods and offer outstanding values.  And while some HUD
Homes do qualify as "handyman specials," many are in very good

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HUD does not warrant the condition of its properties, but will give you
the information it has about the condition of the property you're
interested in.  You can use this information in formulating your bid.

There's even a HUD loan program available, the 203(k), where buyers can
borrow money to make repairs on some properties.  You repay these funds
later, as part of your mortgage.  Just be aware that 203(k) funds aren't
available for all h houses in all areas. Ask the real estate agent
you're working with about 203(k) availability in your area.

Beginning to make it your own.

Once you've found the home of your dreams, it's time to make an offer to
buy it.  Before deciding how much to offer, HUD urges you to get a
professional inspection.  It can also be helpful to find out how long
the home has been on the market-if it's been for sale a while, the
seller may be more willing to bargain.

After you and the agent have prepared your offer, he or she will present
it to the seller.  It may be accepted or rejected, or the seller may
counter your offer by asking for a higher price or by making changes in
the sales contract.

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Making an offer to buy a HUD Home is often much easier than the process
of buying a home on the private market.  You'll submit your offer
through a real estate broker, in the form of a sealed bid using the HUD
contract form.  The person making the highest acceptable bid is
generally awarded that HUD Home.

Offers for HUD Homes can only be made through a licensed real estate
broker.  This way, HUD requirements are met and buyers get the help they
need.  HUD will pay real estate commissions of up to 6% if the
commission amount is requested as part of the bid.

Sometimes HUD accepts an offer that's less than the listing price,
depending on market conditions and the length of time the property has
been on the market.  Sometimes buyers make bids higher than the listing
price, if they believe the market conditions demand it, or if the home
is particularly appealing.

You will generally make your offer for a HUD Home during a designated
"Offer Period."  At the end of the 10-day offer period, all the bids
received on the home will be opened at a public event which you may
attend.  (Full-price offers are often opened immediately.)  If your
offer is accepted, your broker will be notified, generally within 48

Earnest money.  When you make an offer on a home, the seller will
usually require an "earnest money" deposit as proof that your offer is
serious.  If the offer is accepted, your earnest money deposit will
become part of your down payment or closing costs. If your offer is
rejected, the broker will return your earnest money to you.

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You're almost home.

Different loans for different home buyers.

Just as there is more than one kind of home, there is more than one way
to finance it.  Mortgage lenders have come up with many different
methods of helping you pay for a home - each one with its own advantages
and disadvantages.

First of all, you should know that HUD itself does not provide
financing.  You can obtain financing through a bank or mortgage lender.
And since many HUD Homes are eligible for FHA-insured mortgage loans,
this often make financing easier to obtain. However, you are not
required to get an FHA loan to buy a HUD Home.

Fixed-Rate Mortgage.  With a fixed-rate mortgage, your interest rate
stays the same for the term of the mortgage, which is usually 30 years.
Your principal and interest payment remains stable, making it easier to
plan a monthly budget.  However, initial interest rates tend to be
higher than with other types of loans.

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Adjustable-Rate Mortgage.  With an ARM, your interest rate and monthly
payments start out lower than with a fixed-rate, but your rate and
payments can change either up or down, depending on where interest rates
in general are going.  (If they're going up, your monthly payments will
probably go up as well, sometimes significantly.)

FHA-Insured Mortgage.  In this type of loan, the Federal Government
insures the lender against loss in case the home buyer defaults on the
loan.  This program was set up so that Americans who can't afford the
10% to 20% down payment required by most lenders can still buy a home.
Many HUD Homes can be bought with FHA-insured mortgages, which allow you
to purchase the home with as little as 3% down.  You do not have to a
first-time buyer in order to qualify for an FHA loan.

VA Loan.  Under this program, the Department of Veterans Affairs
guarantees the lender against loss.  HUD Homes may be purchased with a
VA loan or any other loan.

Assumable or Non-Assumable.  You may find a home with a mortgage loan
you can "assume" from the previous owner.  This means that the lender is
willing to transfer the old loan on the home to you. These loans can be
wonderful bargains, and the paperwork is usually not very complicated.

Before you decide which loan is right for you, talk to your loan
officer.  You'll get information that will help you figure out which
option best suits your needs.

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HUD brings your up-front costs down.

The costs of buying a home are more than just the price you agree to pay
for it.  Before you move in, you'll have to pay various charges, which
we explain below.  The good news is, with HUD Homes these costs may be
lower than they are with other homes.

Down Payment.  Most people know that a down payment is a percentage of
the price of the home that must be pain up front, in cash.  Many people
don't know that HUD can reduce that down payment from the normal 10% to
20% to a much more agreeable figure of 3%, or even less!  On a $50,000
home, that means $1,500 versus $5,000 or $10,000.

Closing Costs.  This term covers various fees your lender charges for
providing your loan, and other expenses.  Closing costs typically add up
to about 3% or 4% of the price of your home, depending on where you
purchase it.  But when you buy a HUD Home, these costs are often picked
up by HUD-if they are specifically requested, by dollar amount, in the
sealed bid offering.  If you buy a HUD Home, HUD may pay many of your
usual and customary closing expenses plus real estate sales commissions
up to 6%. Just remember that closing costs and sales commissions are
deducted from the bid amount in making the decision as to which offer
brings the greatest return to HUD.  Since bidding is competitive, you
may, in order to offer a more competitive bid, pay your own closing
costs.  This makes HUD's net return greater, making your bid more
favorable and increasing the likelihood that HUD will accept your offer.

Commissions.  These are paid to the broker by the seller, and usually
amount to 6% or 7% of the cost of the house.  When you buy a HUD Home,
the selling agent's commissions are usually paid by HUD.  HUD will pay a
total sales commission of up to 6%.

Checking it out before you check in.

Before you buy anything, you'll want to know exactly what it is you're
getting.  With something as important as your home, you can't know too
much.  That's why it's a good idea to get a professional inspection of
your home-even before you make the offer.  HUD strongly urges every home
buyer to get a professional inspection, whether you're buying a HUD Home
or not.  HUD Homes are sold in "as-is" condition. That means you agree,
if you buy the home, to accept it in its present condition.  HUD does
not pay for the correction of defects in existing homes that it sells or
on homes purchased with FHA-insured mortgages. The owner of the home
will be responsible for needed repairs. Therefore, be sure of the
condition of the home before you submit your offer.

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The finish line.

The day you finally close on your new home will probably be one of the
most exciting in your life.  Finally, the long, tedious process of
finding a home and getting a loan is over, and by the time the day is
done, you'll be the proud and happy owner of your new home.

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Before that day ends, you will be asked to sign a seemingly endless
number of forms, but the closing agent will go over each one with you.
It's all necessary, but you can make it a little easier by asking the
real estate agent about it before the big day comes.  Also, when you
apply for your loan, your lender is required to give you a booklet
explaining closing costs, an estimate of how much cash you'll have to
supply at the closing, and a list of all the documents you'll need.

If you have any questions, perhaps they are answered in the "Q and A"
section that follows.  If not, why not go straight to the phone right
now, and call a real estate agent and ask about HUD Homes? It's a small,
first step.  But the journey could eventually end at the door to a home
you call your own.  Good luck and have fun!

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Questions and Answers about HUD Homes.

What is a HUD Home?

A HUD Home may be a single-family house, a townhome, condominium or
other type of residence.  The properties were deeded to HUD/FHA by
mortgage companies who had foreclosed on FHA-insured mortgage loans. Now
HUD must sell these homes-as quickly as possible at market value-in
order to obtain the maximum financial return on its mortgage insurance

Who can buy a HUD Home?

Anyone who has the money or can qualify for the necessary amount of
mortgage financing can purchase a HUD Home.  You do not have to be
low-income or meet any other such limitations.

Can I get a HUD Home for free, or for one dollar?

No.  HUD acquires its properties through the foreclosure of FHA insured
mortgages.  One of HUD's many missions is to maximize return to the FHA
insurance fund, which it does by selling the properties at fair market

How do I buy a HUD Home?

Our policy is to market acquired properties on a competitive basis with
sealed bid offers being submitted through any participating licensed
real estate broker.  Local brokers will assist you in the transaction.
The can show the property to prospective buyers, as well as answer
questions and provide information on the location of parks, schools,
shopping, and employment centers.

Are HUD Homes meant for low income people?

HUD Homes come in a variety of price ranges, though most are affordably
priced, making them accessible to low and moderate income Americans.

What are the income requirements?

If you make a cash purchase, there are no income requirements.
Otherwise, you must be able to qualify for a particular type of mortgage
financing based on established mortgage lending criteria (see page 3).

How does HUD decide how much to charge for a HUD Home?

The listing price of a HUD property is HUD's estimate of its fair market
value.  HUD established value by comparing HUD properties to similar
properties sold within the community in the previous six-month period.

Can investors purchase HUD Homes?

Yes.  However, HUD offers its properties to owner/occupants for a period
before making them available to investors.

What happens if I can't close the sale within the time permitted by HUD?

You'll probably have to pay fees for an extension of time, usually in
increments of 15 days.

Is there any way for me to get advanced notice about homes that will be
coming up for sale?

No.  The only way to find out about HUD Homes for sale is to look in the
listings in your newspaper (if it carries HUD listings), or ask your


HUD has initiated a nationwide effort to alert home buyers with young
children tot he hazards of older homes that may contain lead-based
paint.  If you are making an offer on a home constructed prior to 1978,
you should be aware that there may be lead-based paint on the premises.
The broker will give you a copy of an information brochure entitled
"Watch Out For Lead Paint Poisoning."  You must also submit a lead-based
paint addendum with your offer on the HUD Home.

Terms you need to know.

Adjustable Rate Mortgage (ARM).  A type of mortgage rate loan whose
interest rate changes periodically up or down, usually once or twice a

Annual Percentage Rate (APR).  Everything financed in your mortgage loan
package (interest, loan fees, points or other charges) expressed as a
percentage of the loan amount (usually slightly above the actual
interest rate alone.)

Assumable Loan.  A loan in which the lender is willing to "transfer"
from the previous owner of the home to the new owner, sometimes at the
same interest rate, sometimes at a new rate.  An assumable loan can make
your home more attractive to buyers when you want to sell.

Closing Costs.  Costs the buyer must pay at the time of closing in
addition to the down payment:  including points, mortgage insurance
premium, homeowners insurance, prepayments for property taxes, etc.
Closing costs average 3%-4% of the loan amount.  If you're buying a HUD
Home, you can request they be paid by HUD>

Contingency.  A condition put on an offer to buy a home; such as the
prospective buyer making an offer contingent on his or her sales of a
present home.

Conventional Mortgage.  A type of mortgage not insured by either the
Federal Housing Administration (FHA) or the Department of Veterans
Affairs (VA), and thus usually requiring a 10%-20% down payment.  (HUD
Homes may be purchased with a conventional mortgage.)

Earnest Money.  Funds submitted with an offer to show "good faith" to
follow through with the purchase.  Earnest money is placed by the broker
in an escrow/trust account until closing, when it becomes part of the
down payment of closing costs.  (HUD generally requires an earnest money
deposit of $500-$2,000.)

Escrow.  A procedure in which documents or transfers of cash and
property are put in the care of a third party, other than the buyer or

FHA Financing.  Financing for a loan which will be insured against loss
by the Federal Housing Administration-a part of the U.S. Department of
Housing and Urban Development (HUD).  Such financing only requires a
3%-5% down payment.

Homeowners Insurance.  Insurance that protects the homeowner fro
"casualty" (losses or damage to the home or personal property) and from
"liability" (damages to other people or property).  Required by the
lender and usually included in the monthly mortgage payment.

Loan Origination Fee.  A fee charged by the lender for evaluating,
preparing, and submitting a proposed mortgage loan.

Mortgage Insurance Premium (MIP).  A charge paid by the borrower
(usually as part of the closing costs) to obtain financing, especially
when making a down payment of less than 20% of the purchase price, for
example on an FHA-insured loan.

Point.  An amount equal to 1% of the principal amount being borrowed.
The lender may charge the borrower several "points" in order to provide
the loan.

Property Taxes.  Taxes (based on the assessed value of the home) paid by
the homeowner for community services such as schools, public works, and
other costs of local government.  Paid as a part of the monthly mortgage

Title Insurance.  Protects lenders and homeowners against loss of their
interest in property due to legal defects in the title.

VA Loan.  A loan guaranteed by the Department of Veterans Affairs
against loss to the lender, and made through a private lender. (HUD
Homes may be purchased with a VA loan.)

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February, 1995

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