Submitting a bid on a HUD foreclosure is a fairly simple process. The market for Denver HUD homes is super competitive so make sure you have a pre-qualification letter and your earnest money ready.
First speak to and select a lender and get your letter that states that how much you can qualify to borrow. Getting pre qualified is needed to make an offer on a HUD home. The contract requires that you state of what type of financing you will be obtaining. The choices range from a conventional loan, an FHA loan, VA loan or just plain cash at closing. Your lender will be able to help you figure out what you can afford comfortably. Housing and Urban Development homes have already been appraised, and they are usually listed at their appraised value. Therefore, offering more than listing price on a HUD home means the difference will often need to be paid in cash at closing by the buyer. Loans are only given for the amount of the appraised value the loan will be for whichever amount is less and in this case, the appraised value. Cash is always accepted for a HUD home.
Once you get your pre qualified letter you will be ready to go see some of the available HUD homes in the area you are wanting to invest in. Do not try to go into a HUD home or submit a bid without an agent, they are considered federal property. We would be happy to show you the available Denver HUD homes. Contact us, your Denver HUD Home Brokers. When we go out and tour them please keep in mind that they are as-is. HUD will not ever fix anything, so most of them will need sweat equity like paint and carpet. One nice thing about bidding on HUD homes is that owner occupants get first dibs so you will not be competing against investors unless the home has been on the market for quite a while. Once we find you a HUD home that you like I will need the following information to submit your bid to purchase:
1. Offer Amount: What amount would you like to offer on the home? From my analysis they accept 5% less than asking, but on hot properties this will not win the bid. I have seen some go for $20k over asking when the market is hot.
2. Financing: What type of financing will you be using?
- 203B: This is the most common type of FHA loan. The down payment can be as little as 3.5% and often times, closing costs can be wrapped into the mortgage.
- 203B, repair escrow involved: This option is quite common for HUD homes. For those using 203B financing with a repair escrow will be financed by the FHA lender. A repair escrow is an amount of money not exceeding $5,000, owed by the buyer that will fix any short comings to bring the property to an FHA approved condition. The repair escrow must be used towards remedying the needed repair specified in the listing which I can supply for you. An example may be a repair escrow to fix a pipe that cracked during the winter.
- 203k: This type of financing is for homes that need repairs exceeding $5,000. For example a home is listed as $100,000, but it needs $10,000 in repairs. The loan will be for $110,000.
- Cash, Conventional, or any other financing not involving FHA or HUD
3. Seller Concession: A seller concession is an amount of money the seller will contribute in assistance to closing costs. HUD will contribute up to 3% of the offer amount to go towards closing costs.
4. Back Up: May HUD hold your offer as a backup offer to the accepted bid?
5. Personal Information: The social security numbers, full legal names, and street addresses for everyone going on the title are required.
Once a bid is submitted, HUD will select an offer after the last day of the bidding period, which is usually 10 days from the original listing date. Once your bid is accepted we will have 2 days to deliver the HUD contract to HUD head quarters. It may take 1-2 business days to get the actual acceptance contract stamped and returned and closings usually take about 45 days from contract acceptance.
Here is a link to Frequently Asked Questions about Denver HUD Home Buying. If you still have any questions please feel free to give me a call at 303-476-8454 and I would be happy to answer them.