Would This Approach Work For A HUD Home? (Using HML)

Question

Okay, so bare with me here. I just want to make sure I understand their process. Let's say I wanted to buy this home.View Home It's a 2/1 coming in at 1,000 square feet, pretty average home for the area. The appliances are missing, I'd want to repaint it to more neutral colors, and fix up that bathroom. My contractor walks through and for all that, appliances included he gives me a quote of $10,000 but I'm gonna assume $15,000. Low Comps in the area for this kind of home are $90,000 so with those figures I want to offer $43,500 (fat chance of acceptance I think).

Do I go through the broker or whomever to submit a bid now? Or do I go to a HML and tell them what I'd like to bid, renovations, etc. get a pre-approval letter, proof of funds, and take that to the agent along with my bid?
	
	I've found a HML who will give me a pre-approval letter and proof of funds on the spot, while I submit my deal or loan information and they can have it completed as quickly as 3-5 days. Will this work for a HUD home? Obviously I still need to schedule a viewing to get in there with my contractor.

I haven't used the deal analyzer to calculate other things like closing costs and listing fees, because I don't know how to calculate closing costs and then my sales costs, relisting, etc. Suggestions here?

Jason Eyerly · Answer

Most properties around me are at 60 days+ so I was hoping I'd put in a low starting offer and get a counter. From my understanding you can put in a new bid everyday, either the same or an increase.

Mark Ferguson · Answer

In my area they will accept 11% less than list price net if its been listed less than 60 days. I've heard some areas will accept a little less. They may counter you if you are close to the price they'll accept and have had little activity.

Jason Eyerly · Answer

I believe J Scott said they'll only go about as low as 80% of the list price. That would mean that I'd need to pull comps and hope it was already listed at a discount and then start my offers at 75%ish, to make the numbers meet the 70% ARV less repairs and holding costs, and the price that we aim for. I'll go check your blog out now!

Mark Ferguson · Answer

I have a lot of info on HUD on my blog and in the BP blog.   I'llmention a few basics.

1.  You should get a prequal first even though you won't have to submit it with your bid. This will let the agent know your serious.

2.  The agent can help with closing cost estimates.  HUD won't pay title insurance or closing fees, but you can ask them to pay some of your closing costs.  The Hml can give you loan costs.

3.  How low is your offer compared to ask price?  HUD will take low offers but only after homes have been on the market a while. 60 days +.

4.  Investors won't get their earnest money back once HUD accepts their contract(not the bid).

Jerry W. · Answer

@Mark  Ferguson is a resident expert on HUD homes.  Maybe he can chime in and give some advice.  It is my understanding once you put in any bid you can get on their list for that house for future price reductions on it.  That can be very helpful.  You do not need to send earnest money for an offer but you must do so quickly after one is accepted and you have to have proof of funds quickly as well.  There is no inspection period or subject to offers in HUD homes as far as I know.  I have only offered on them I have never gotten one yet.  I even offered more than asking price once and did not get it.

Chris Martin · Answer

As you know, all HUD bids go through a broker. That broker is going to want to know that you can close (get a loan), if it is for your self (owner occupied) or not, that you have everything necessary so he/she (the broker) can get paid a commission. So one of your allies is that broker. The others are your HML and contractor. Let the broker know you plan to use an unconventional loan, but show the documented pre-approval. Also let the broker know your plan(s) to use low price offers. They want to 1) get a commission 2) not 'waste' too much time putting in low/no probability, low-ball offers if they can avoid it. You may need to 'interview' a few brokers (maybe quite a few) before you get to where you want to be.

Other (necessary, IMO) 'assets' are J Scott's book The Book on Flipping Houses: How to Buy, Rehab, and Resell Residential Properties and a statement of work that your contractor can help with.

Good luck.