Low Down Payment With HUD Auctions
In most cases, first time buyers get screwed by the big boys with cash.
The average home buyer is not able to compete with all cash offers or 30% to 50% down payments. Housing Wire reported today, first time home buyers are loosing houses to cash buyers and bidders with large down payments.
When you buy a HUD House. All bids are treated equally. You can win by $1 or $1,000. Hud homes, that are FHA Insured or in HUD Language IN generally do not go over asking price. Hud homes are apprasied by an FHA apprasier. This price determines, the amount FHA will insure on a home loan. This keeps the bidding reasonable and fair, and of course you can bid under the asking price.
In many cases, even if there are multiable bids, you can still win the bid with a smart bidding strategy. The winning bid is determined by highest net value. FHA will only loan on the orginal list price, any amount over must be paid with cash out of pocket. For example if a HUD house is first listed for $75,000 and the buyer is going to use a FHA loan, we know that the offer price will not be higher than $75,000. In some cases, buyers may prefer not to use an FHA loan and then they may offer a higher price. In my experience, bidders who bid way over asking price on a HUD house, will often times drop out, (buyers remorse) because they realized they paid too much, however if the buyers use a non-FHA loan, they are not restricted by the FHA apprasial of the orginal purchae price and may bid higher.
Winning Bid Example
Buyer A bids $75,001, Hud will pay up to 3% closing costs and will pay up to 3% in commissions.
Buyer needs the full 3% closing cost credit or $2,250 and the Hud Approved broker requires full commission of $2,250. (3% x $75,001) please remember, the commission paid to the Approved Broker representing the buyer is negotiable.
$75,001 Offer Price from Bidder A
$2,250 Closing Cost Credit from HUD
$2,250 Commission paid to Hud Approved Broker from HUD
$2,250 Commission paid to Broad Listing Agent (A fixed amount at 3% and not negotiable)
$68,251 Net Value to HUD. This is the value to determine winning bid.
Buyer B bids $74,500, Buyer B does not need full closing cost credit, and only asks for $2,000 and Buyer B’s broker agrees to take off $235 off the commission, for a flat $2,000 (3% x 74,500)
$74,500 Offer Price
$2,000 Closing Cost credit to buy from HUD
$2,000 Commission paid to Hud Appproved Broker from HUD
$ 2,235 Commission paid to Broad Listing Broker from HUD
$68,265 Net Value to HUD
Bidder B Wins by $14 even though Bidder A bid $501 higher. By taking less closing costs and through broker cooperation, a win-win relationship created a winning bid.
HUD Homes make $ense. The bidding is fair and with good strategy and an experienced HUD Approved Broker will help you win the bid without over bidding.
Top 3 Tips for a Winning Bid
- It will take 3 to 4 offers to Win
- Being in second place as back up gives you a great chance to win without over paying.
- Track the Bid Results to give you an idea if bids are going over price or below price, just remember that the price posted is net to HUD not offer price.