Whenever I meet a new client I make it clear to them that I AM NOT A LENDER. However, great communication with a lender, buyer and agent during a transaction can ensure a smooth transaction and a happy client. It’s been quite some time since I’ve had a client successfully bid on a HUD foreclosure home. Here in the local Denver market, the process has changed quite a bit over the last year. Without getting into details of a deal that almost went WRONG based on bad information from a lender who apparently hadn’t completed a recent HUD transaction, here are a few things to know.
1. HUD properties are listed at the appraised value as determined for FHA financing.
2. For FHA financing, every lender I have spoken with (with the exception of the one who steered me wrong) will require that the existing FHA appraisal provided with the property information for bidding be used for FHA financing unless it’s expired (more than 3 months old). For conventional financing, a new appraisal can be ordered.
3. If the buyer bids higher than the appraised value, they buyer is expected to bring the difference above the appraised value PLUS their downpayment cost (based on the appraised value). For example, the HUD property is listed at the appraised value of $200k. The buyer successfully wins a bid with their offer of $205k. The buyer must bring $5k +down payment (3.5% of the $200k for FHA) to closing.
4. HUD homes are sold as-is. They may offer a repair escrow (allowance) to be included with your loan. However, no repairs can be made to the home prior to closing.
So I’m writing this to say to my buyer clients, make sure your lender is familiar with HUD transactions and repair escrows. It can make or break your deal!
