3 Important HUD Housing Programs for Landlords

Fair Housing, Section 8 and HUD Homes

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Even though most landlords privately own their rental property, it is important to become familiar with government housing programs. These HUD housing programs aim to ensure that all renters and buyers are treated equally and have the ability to live in safe, habitable conditions. Learn three important HUD programs every landlord should follow and understand.

What Is HUD?

HUD stands for the Department of Housing and Urban Development. It was created in 1965 under President Lyndon Johnson. HUD's mission is to provide decent housing for all Americans. HUD's programs include voucher assistance, community housing development, including low income and senior housing, mortgage loans and the education and enforcement of fair housing.

HUD Fair Housing and Equal Opportunity Program

Mission:

HUD is responsible for enforcing the Fair Housing Act of 1968. The Fair Housing Act makes it illegal to discriminate based on color, disability, familial status, national original, race, religion or sex , when selling a house, renting a house, or lending on a mortgage.

Process:

If a person feels they have been discriminated against in a housing related activity, they can file a claim with HUD. HUD will investigate the claim. It will first notify the “alleged” offending party of the claim and allow them to respond. HUD will then determine if there is any merit to the claim.

HUD can offer the parties the ability to reconcile their complaint with a HUD Conciliation Agreement. If conciliation fails and HUD has “reasonable cause” to believe discrimination has occurred, the case will go to an administrative hearing or to Federal District Court if the parties prefer.

Significance for Landlords:

As a landlord, who will be renting out or selling your property, you need to understand and follow the Fair Housing Act, so you will not be accused of discrimination. If you are trying to get a mortgage for your investment, you need to understand the Fair Housing Act so you yourself are not discriminated against.

2. HUD Housing Choice Voucher Program

Mission:

The Housing Choice Voucher Program is funded by HUD and enacted through local Public Housing Agencies (PHAs). Commonly referred to as Section 8 Housing, this program provides low-income tenants, seniors, or the disabled with subsidized rental vouchers.

Process:

If approved for a Section 8 voucher, the individuals can use these vouchers to select the housing of their choice, as long as the property owner has agreed to accept this program. The housing must also comply with the PHA​ health and safety codes. The PHA will directly pay the landlord an agreed upon portion of the rent. The tenant will be responsible for any additional rent that the government voucher has not covered.

Significance for Landlords:

As a landlord, you need to decide if you will accept Section 8 tenants in your property.

  • You will be guaranteed a portion of the rent (sometimes all of it) from the government every month.
  • You cannot charge more than what HUD determines to be Fair Market Rent (FMR) for your property.
  • The PHA’s often have very rigorous health and safety standards regarding what acceptable housing is. For example, if the interior of a closet has not been painted, you could fail your Section 8 inspection until the repair is made.
  • The PHA does not always pay the entire rent amount, so the tenant will be responsible for paying the difference. You need to make sure the tenant has the funds to do so.

In some states, it is illegal to deny a tenant because they have Section 8. You can, however, deny them based on poor credit found after you run a credit check.

3. HUD Homes Program

Mission:

The Federal Housing Authority (FHA) is the division of HUD that insures mortgages. If an FHA-insured mortgage is defaulted on (the owner stops paying their mortgage and the house goes into foreclosure), the mortgage lender can file a claim with the FHA to recover the rest of the mortgage owed. When the FHA makes the lender whole (pays off the balance of the mortgage), HUD becomes the owner of the property and will try to sell the property to recover the money they lost.

Process:

HUD forecloses on single-family (1-4 units) and multifamily homes (5+ units). HUD single family homes are first offered for sale to owner-occupants (owners who will be living in the property). If there are no takers after the initial offering, traditionally ten days, investors are then allowed to bid on the homes.

You must follow specific rules to bid on HUD multifamily properties. You must register, download a bid kit, and bring an earnest money deposit to have the ability to bid at the auction.

Significance for Landlords:

HUD homes can be more affordable because the government discounts them according to the repairs they need and will pay some of the closing and sales commission costs. The government may overestimate the cost of the repairs needed or undervalue the property and this is where you can make money as an investor.