About the Author:  Chuck Walden (NMLS #148160) is a loan officer with GMAC Mortgage.  Email Chuck at chuck.walden@gmacm.com or call 678-725-8076. Website is www.ChuckWalden.com

United States Department of Housing and Urban ...

United States Department of Housing and Urban Development Seal (Photo credit: Wikipedia)

 

Wow, I can buy a home for $100!  Time and time again, I get phone calls from potential buyers about this program.  Those that have not found a good real estate agent yet, or an informed agent, are very confused about how this works.  Sure, HUD has foreclosed homes for sale that qualify for only a $100 down payment.  But, that is not entirely true.

How much money will you need?  The story goes like this…..

1.  You will be required to give an earnest money check for either $500 or $1000 when your offer is accepted.  If any of this money is not needed it will be credited back to you.

2.  HUD has already completed an appraisal on the property and most lenders can use this appraisal. However, just like everything else, the appraisal has an expiration date.  Most lenders will allow you to use the HUD appraisal for 90-120 days.  If not, your appraisal fee will be between $400-$500.

3.  Never buy a home without having your own home inspection performed.  This fee typically runs around $300.  Obviously, prices can vary

4.  Supply vs. Demand – There are less HUD homes on the market today than there were a year ago.  Less supply equals greater demand.   Greater demand equals higher prices.  Typically, HUD homes are getting offers above list price.  If HUD has listed the home for the appraised value (the norm), and you bid higher than the list price, you will be required to bring the difference.  For example, if a home is listed for $100,000 and you offer $101,000, you will be required to bring the difference of $1000.

5.  Upfront Mortgage Insurance Premium – Currently, this fee, charged on any FHA transaction, is 1.75%.  A $100,000 loan carries a $1750 premium that you would need to bring to closing.

6.  Escrows – An escrow account is set up on a new home purchase for the purpose of paying your property taxes and homeowners insurance annually when they are due.  You will have to pay your first year annual premium for your homeowners insurance at closing plus 3 extra months of reserves.  You will be required to pay 2-3 months of property taxes at closing.  If your homeowners insurance is $720 per year ($60 per month), you will need to bring $900 to set up the insurance portion of your escrow account.  If your property taxes are $1200 per year ($100 per month), you will need to bring $200-$300 to closing for your property tax portion of your escrow account.

As you can see, $100 will not cover everything.  And, I guarantee that your loan will not be approved unless you have adequate reserves, or money left over after closing.  No one wants to use all of their money in the purchase of the home and not be able to turn on the electricity and water after closing.

Now, there are two things you can do to help offset these costs.  You are allowed to ask for the seller to pay a portion of your closing costs.  Also, GMAC Mortgage has a program called Purchase Power which will pay for the majority of your closing costs without raising your interest rate to cover those costs.  A couple of items not covered would be owners title insurance and intangible taxes paid to the state.  Use these two to help offset your costs at closing, but remember, you will need more than a $100.

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