What Is the Difference Between a HUD Home and a HomePath?

HUD Homes

The Federal Housing Administration, or FHA works through state and local housing agencies to provide home buyers with affordable mortgage rates. Lenders who contract with the FHA can offer FHA mortgage loans to potential home buyers. The federal government insures FHA mortgage loans, meaning lenders are guaranteed payment in the event of foreclosure. This arrangement enables lenders to offer more affordable loan rates when compared to conventional loans. In effect, FHA mortgage loan terms distinguish HUD homes within the HomePath Mortgage Program.

HomePath Mortgage Program

The HomePath Mortgage Program offers a way for home buyers and investors to purchase a HUD home, or foreclosure property financed through FHA loans. The program offers special rates for HUD homes and also offers loan assistance in cases where a property is in need of renovation. A HomePath Renovation Mortgage combines the costs of renovation and the cost of the property into one mortgage loan. HomePath financing is offered through lenders who contract with the program. Under the program, lenders do not require property appraisals or mortgage insurance, which helps to reduce the overall costs involved with a property sale.

Financing

Financing requirements for HUD homes without HomePath financing versus HUD homes with HomePath financing differ in terms of the type of loan used to fund the purchase. FHA loan financing is permissible in both cases, though with certain conditions attached. Whenever an FHA loan is involved, buyers must purchase mortgage insurance. Mortgage insurance acts as the federal guarantee that a property will be paid off in the event of foreclosure. HomePath mortgages don’t require buyers to purchase mortgage insurance as long as mortgage financing is not through an FHA loan. HomePath financing also sets a lower down payment requirement of 3 percent compared to the 3 1/2 percent required for FHA loans. In the case of HomePath renovation financing, buyers can finance up to 35 percent of the property’s actual value once renovations are made.

Purchase Options

The U.S. Department of Housing and Urban Development promotes home ownership, first and foremost. As a result, people interested in purchasing a HUD home must intend to use the property as a primary residence for a minimum of one year. Depending on the terms of the sale, buyers can assume the original FHA mortgage on the property or may have to come up with new financing altogether. The HomePath Program differs as far as ownership requirements go when compared to HUD purchases. HomePath financing allows a buyer to purchase a property as a primary residence, a second home or as an investment property.