Can I finance a HUD home to an owner occupant?

Question

I was wondering if anyone had any experience in financing a HUD home to an owner occupant? I offered to finance a HUD home to a friend/handyman who never thought he could afford a home/be a homeowner. We found a home on the hud homestore and we checked with the realtor to make sure that it was OK to provide financing. My friend bid and hewon the bid. He was so excited he was crying! My realtor called today and now thinks there may be an issue with me financing to him since I/my SDIRA who is lending him the money is not a "conventional lender."

Does anyone have any experience with financing to people who buy HUD homes? I don't want my friend to lose his earnest money because HUD won't let me finance to him.

Any advice would be appreciated.

Does anyone have any experience with financing to people who buy HUD homes?  I don't want my friend to lose his earnest money because HUD won't let me finance to him.

Any advice would be appreciated.

Greg H. · Answer

@Sandy Uhlmann

The answer is yes you can do it.  The problem is not with the title company but with the Contract Reviewer for Hud's Asset Manager which in Missouri appears to be Chronos.  My guess would be the reviewer initials are JH and she is tough.  Here is what I would do :

You need to provide a lender letter containing the exact language that HUD requires.  You also need to provide proof of funds that the funds to lend are available.  I would also attach a letter of explanation detailing that you are indded providing the financing and such.  The only potential issue is that the funds are still in you SDIRA and often they are not considered "ready" funds as they can take a few days to access.

Your agent must do a great job of explaining and providing the information in a timely manner.  Wanting a gift letter did not get him/her off to a good start.  Feel free to PM me if you need an example of an acceptable lender letter

Mark Gallagher · Answer

@Sandy Uhlmann

What ended up happening here?

Sandy Uhlmann · Answer

Much more competition with HUD if you wait until investors are able to bid. I had a homeowner that was interested in this home within the period that the home was available only to owner occupants. This house would have bid far above what the buyer purchased it for if we had waited until bidding was open to investors.

Keith Thompson · Answer

@Sandy Uhlmann  Rather than lending the funds, have you considered purchasing the home yourself and selling it via a Contract for Deed? I like them because the Contract gets recorded, the purchaser gets the tax write off, you get a pocket deed in case payments stop coming (avoids foreclosure entirely), you get the interest and a balloon at whatever time period/terms you agree to - you can even have the home reassessed and valued as the closing approaches, generally years downstream.

I think it's called different things in different states, but Contract for Deed is my preferred method for providing financing.

Sandy Uhlmann · Answer

I already sent my agent a pre-qualification letter with the balance of the funds available in my account.  I am assuming that that letter was sent to HUD as proof of funds so that should not be an issue.

Michael Noto · Answer

very good advice from @Greg H.

Brent Coombs · Answer

Marian, I agree with YOU. It shouldn't matter to the HUD Seller/Lender that the OP may have to foreclose on her Borrower/friend sometime down the track.

Sandy wrote that it was "my SDIRA who is lending him the money". If there's ANY doubt that the SDIRA would come up with the needed funds on time (or at all), then THAT's a problem.

Sandy, can you quell any doubt? All the best...

Sandy Uhlmann · Answer

@Marian Smith I agree with you.  For some reason the HUD agent that the Realtor is speaking with seems to want a "gift letter" from me.  My agent keeps telling her that this is not a gift, that I am lending the money to the borrower.  They then ask for a Lender letter.  My agent is worried since I am not considered a traditional lender the deal may be jeopardized when I provide them with a lender letter that is non traditional since my SDIRA will be funding the deal. I just don't want this deal to fall through and for my prospective borrower to lose his earnest money and lose this home because of this.

Can I finance a HUD home to an owner occupant?

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