If you’re considering buying or refinancing a home, learn what a HUD loan is and if it’s an option for you.
What Is a HUD Loan?
HUD loans aren’t actually issued by HUD, nor the FHA. Instead, they’re originated by private lenders approved by HUD, then insured by the FHA against loss.
Alternate name: FHA loanAcronym: HUD (U.S. Department of Housing and Urban Development), FHA (Federal Housing Administration)
How HUD Loans Work
HUD loans work because they’re insured by the FHA. This protection allows lenders to offer affordable interest rates, accept low down payments, and approve borrowers whose credit may not be perfect. But insurance comes at a cost. HUD borrowers pay both an upfront mortgage insurance premium (UFMIP) plus a monthly insurance premium that is lumped in with their mortgage payment. The cost of these premiums varies based on the down payment and loan amount. In some cases, this insurance can be canceled after 11 years.
HUD vs. FHA Loans
HUD loans and FHA loans are one and the same. The FHA is part of HUD and is the agency that actually insures these types of mortgage loans.
Qualifying for a Loan
The FHA was originally created to make homeownership more affordable for everyday Americans. As such, HUD loans come with low credit-score requirements (anywhere from 500 to 580), and the minimum down payment is just 3.5%. Here’s what the general requirements look like:
How to Get a HUD Loan
If you are interested in an FHA loan, take these steps:
