My bid was recently accepted for a HUD home. The starting bid was priced at $95,000, and I offered $127,500. The house is 4bd, 1.5 bath. It assesses on the city site at $123,200.

The reason I bid so high is because I have been outbid before, and the market in my area is very volatile. It's difficult to find a decent home in my price range, especially when I intend to rent the house out in the near future to begin building my investment portfolio. The house is in decent shape, no major issues noted (until inspection of course). I am comfortable with the decision because I am using an FHA repair escrow, so many of the issues recognized by the appraiser will be covered in the repair escrow.

The contract states that I must make up the difference in cash if the bid amount offered is higher than the appraised amount. I believe that the house will appraise for around my accepted offer of $127,500. However, in the off chance that it is much lower, I will not be able to afford that, along with closing costs and down payment all in cash.

Have you experienced anything of this nature and how did you resolve it? I believe I should be able to get out of the contract if it turns out to be too much out of my pocket due to finances.

Is there possibly even a way to finance the difference I would owe, or even roll it into my mortgage? Thank you for the help!

@Jonaye Barnum what is your assessment of the as is value?

Is there a contingency for financing if the financing is not approved for an amount you will need

      I believe I should be able to get out of the contract

You BELIEVE? Don't you know for sure? Reading between the lines it sounds like you have made an offer without knowing key things you should know before moving forward.

    Is there possibly even a way to finance the difference I would owe, or even roll it into my mortgage

Generally Banks do not want you to do 100% financing. They don't want a second lender. They want to know you have "skin in the game" They want to know you have put your own money into the deal so that you will thin twice before waling if things go wrong.

You may be able to have someone gift you some money or get a private loan that is "seasoned" in your account long enough they don't look at it as money loaned to you for the house purchase.

Sometimes you can appeal an appraisal or help influence an appraisal in a positive way by supplying your own comps. I hope this works out for you. Keep us posted.

@Jonaye Barnum

THIS is just another reason that a buyer should only use an experienced HUD agent if bidding on a HUD property as your agent should have explained this. HUD lists the property at 100% of appraised value so any offer above list price using an FHA loan is considered additional down payment. NO way around it other than going with a conventional loan which has its own obstacles

Those obstacles are the need for an as-is appraisal most likely without utilities on.  Address this with your lender asap

@Greg H. I'm not so sure that HUD lists at full appraisal value. Ours was listed at $260k, we bid $287k, we appraised at $308k when purchasing. Our market was hot, all properties selling 10% higher than asking price at the time.

@Jonaye Barnum if I were you, I'd find hard money somewhere to cover your butt. Grandma, friends, family... whatever you can swing. I would not attempt to borrow any more of the money from a bank. I do not believe that HUD would allow that difference in appraisal value to be added to your mortgage. We bid well above asking on our HUD property and things turned out just fine. Our agent - very experienced - made no mention of this appraisal issue. Fortunately, we appraised high before closing.

I will keep my fingers crossed for you, and in the meantime, let us know how it goes!  

Hi @Jonaye Barnum

You said you bid $127,500. Is that the end number after the repair escrow? How much is the Escrow and what is it expected to cover? Are the items it is covering "value add items"?

Originally posted by @Jonaye Barnum :

The contract states that I must make up the difference in cash if the bid amount offered is higher than the appraised amount. I believe that the house will appraise for around my accepted offer of $127,500. 

Is there possibly even a way to finance the difference I would owe, or even roll it into my mortgage? Thank you for the help!

Doesn't apply here, but any GOOD offer should have some clause to the effect of "property must meet or beat appraisal".

The issue is, no matter how good a deal or how badly you want it, appraisal is the cap on what a bank will loan for the property.  And for good reason (assuming the appraisal is a sanity check), why would a bank loan on a bunch of properties at higher than market?  It'll make their portfolio look pretty ugly.

If the appraisal is below offer price, your best chance is to go to the lender and appeal.  They're relying on the appraisal (since it's a knowledgable dis-interested 3rd party) for value.  If you have an extremely good case (enough to convince the lender) why it is worth more than appraisal, you may be able to get them to move.

Otherwise, if you want a loan for the diff and the bank allows subordinate financing, you're probably stuck with a pretty expensive loan on the difference.

@Noreen Eddy

I have made a living for 30 years buying HUD homes. They absolutely positively list the property for 100% of the value from the FHA appraisal which is why the OP needs to make up the difference if they choose the FHA route. It has not always been this way with HUD but has been for the last decade.

An appraisal is the value of one appraiser at a moment of time.  No 2 appraisers will come up with the same valuation

@Steve Morris

HUD does do this as they list at 100% of the FHA appraisal valuation and clearly state that bidding above that amount and utilizing FHA financing, the buyer will have to make up the difference. An FHA appraisal stays with the property for 120 days

I consider myself pretty savvy at HUD homes as I have helped numerous clients purchase them (And a few myself fully disclosed). That said, In the few years I have read and listened to @Greg H. ...and headed his advice.... There is not a person who I would trust as an advisor more than him for HUD homes. 

I have never purchased (or advised purchasing any home HUD or not) 25% over asking (or even close). Especially financed, because the banks want things done. If you have cash in hand at 25% of value there are huge options across the board for all properties in the area. Obviously I do not know where you are, but "Getting out of a HUD contract" is different than a standard local purchase and sale contract.