Hello again. It’s Reggie Moon, Qualifying Broker with Eclipse USA Realty. Today I’m going to break down what it means to acquire a HUD house with $100 down. You hear it a lot, you see it on the HUD website, you see it all over the internet that you can acquire a HUD house for $100 down. Let me break it down for you. $100 is your down payment. The $100 down only applies if you’re an owner/occupant, and if you’re getting an FHA loan. You may say “What? $100 down and that’s it?” No. That’s not it. That is your down payment. It confuses people sometimes when we win the bid, and the next day I’m asking for $1,000 earnest money check, which I’ll talk about in a second.
Your down payment is what is required by FHA to get a home loan. Typical down payments for FHA loans are 3.5% of the sale price. So, if you have a $100,000 house, you’re going to pay $3,500 down as a down payment. If it’s a HUD house, and you’re going FHA it’s still the $3,500 , which is 3.5% of $100,000 instead of $3,500 it’s 100 down. That is your down payment. Now, HUD will pay up to 3% towards your closing costs. Let’s say your total closing costs are $5,000. In this example, HUD will pay $3,000 towards your closing costs. So, there’s still an extra $2,000 right? That gets added to what you have to bring to the table. So, as far as getting into the house, it’s not just the down payment. Although it’s a fantastic program, that’s not all you pay. You have to pay, as a buyer, closing costs that the seller is not paying. So, if your total closing costs for $5,000, and HUD is only going to pay $3,000 you get to pay the difference. So in real life a $100,000 house is $100 down, and about $2,000 in closing costs that you pay, then HUD will pay right at 3% ($3,000 in this example). To get into it, it’s more than $100. That’s just your down payment. There are closing costs that the seller (who is HUD) is not going to pay, and you have to pay that too.
The earnest money is different. The earnest money is contractual. It has nothing to do with the loan. If you win a bid, and it’s over $50,000 the next day if you win it you’ll need to write a check to HUD for $1,000. That is your earnest money, not to be confused with your down payment. Your down payment is part of a loan. The earnest money is part of the contract. You do get a credit back at closing for your earnest money that you paid. In this example, I said you would pay $2,100 to get into the house. If you put $1,000 down, at the closing you only have to bring $1,100 to close.
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