HUD Price Reduction vs. ARV questions?

Question

Hi all...Jugo here.

I"m currently shopping for a loan for my 1st home purchase, and I had a question about HUD and was hoping, no, counting on the pros here to answer a few pertinent questions I know several rookies here have thought about also..
Thanks for your timely response in advance....

Question 1: When a HUD home is "Price Reduced", does the buyer recieve the difference to the amount of his ARV? For example: Reduced Price: 52K Original Sale Price: 65K ARV (comp) : 82K

What would the GROSS equity be when I purchase this property? Do I subtract the difference of the Reduced price vs. ARV to get TOTAL equity amount? In this example, would it be 30K? I KNOW HUD factors ONLY as-is value when pricing if the home has been sitting for awhile, which is why it's reduced in the 1st place.

In full disclosure, I am FULLY aware that repairs, etc. play a role in HOW MUCH equity will be available after purchase but just want to know what / how to calculate equity ONLY. Thanks.

I'm finding some really HOT deals on HUD website, but want to cross T's before jumping into a home I'm hoping will bank me and not break me.

Question 2: Has anyone purchased an HUD home using FHA financing?

Their website mentions a $100 down payment if financed using FHA! Count me in like Bingo if this is the case!

If so, how many properties can you purchase before you're able to buy another using $100 dp? I'm guessing that once you show proof that your CURRENT home(s) are rented, you can repeat the process again using the same methods?

Thanks for any and all input....

Jugganaut "you are NOT your job, you are NOT your car, you are NOT your f'in khakies!" -Tyler Durden (Fight Club)

Tom C · Answer

I am checking with 2 of my best brokers and will let you guys know. They used to be able to do 90 days no problem.

Jon Holdman · Answer

Not yet, anyway. I did finally close on the refi I mentioned above. But I think the Wachovia deal I mentioned has gone away. I'd look for another broker, and quick. Seems like its getting harder to get a loan every day.

Bryan . · Answer

Not sure if this is a new law or just bad advice from my mortgage broker, but similar to the above scenario, I purchased a HUD in January for cash, after significant renovations and a new appraisal, I was told I had to wait six months to do a cash out mortgage. I was also told that had I mortgaged the property when I purchased it, I would have had to wait a year to refinance! Anyone else running into this or should I be shopping for a new mortgage broker?

Jon Holdman · Answer

A good mortgage broker who works with investor is your friend here. You can do a refi with no seasoning. I have one in process now that's going to look like a zero seasoning because the title company screwed up. I also spoke with a rep at Wachovia a month ago or so and he said they would do it, too.

There will be complications if you're claiming a significantly higher value than what you paid. But it can still be done.

Go visit or call some banks and mortgage brokers and talk to them. Go to your REIA and talk to people there.

Julian Barnes · Answer

Ohh..TC -Thanks greatly for the info.

After searching diligently to no avail, I'm trying to find out how long you have to wait (after home purchase) to refi? I know there's different refinance programs out there, duh, but I was interested in the FHA refi program.

Can you please provide some sources where I can find such info? Lending Tree?

Thanks in advance ....

Jugonion "I never feel comfortable in the womens dept. I feel like I'm this close to trying on a dress." -Jerry Seinfeld -Kramer

Tom C · Answer

Jugo,

Don't confuse the investor bidding period. The investor bidding period is when anyone can place a bid, investor or OO. As an investor, your broker must, along with your bid, overnight your proof of funds letter and earnest money. You must be able to show that you either have the funds to buy the place or that you have a lender, Any Lender, willing to give you a loan. HUD doesn't care about your FICO or anything else. So your broker submits 3 things to HUD when you make a bid.

1. Your bid/ Contract 2. Proof of Funds Letter 3. Earnest money, which is usually $1000.00

All three are required. HUD doesn't care if you call yourself an investor or John Jones. Anyone can bid during the All bid time frame. No requirement for a investing history. The only reason HUD separates OO and All Bid is to allow people who intend to live in the house first chance to get it. If no one wants it, then NOO/ Investors get a chance to bid on it during the All bid time frame.

Julian Barnes · Answer

Yes TC, it DOES help! Immensely enormous info on my part b/c I was under a complete misapprehension. Thanks greatly...

Ok, so if I bid as an "Investor" during the bidding only period, are the qualifications for bidding different than compared to that of an OO?
For example, higher credit score requirements? More downpayment?
Refi requirements?
Since this is my 1st home purchase, will that matter? Is the Investor Bidding period restricted to ONLY seasoned investors? (5 or more homes)

Thanks for clarifying the above questions in advance. I'll do an addtional "post" search on the subject of Investor Bidding. Pretty sure there's a lot of info here on BPockets.... 8)

Jugo, USA

Tom C · Answer

I don't understand your question. If you buy a HUD during the "all bids" time frame, then you can do whatever you want with the house. If you are going to live there / OO, then you can qualify for HUD's programs. If you are buying it NOO, then you do not qualify for HUD's programs.

I am not aware of any type of penalities that you talk about. You can refi or sell that house any time you want if you buy it NOO. The only penalities come in is if you lie, buy it during the only OO period and say it's OO, and turn around and don't live in the sucker. You can go to jail for that. I believe you have to live in the house at least 12 months. Renting it to somone qualifies as NOO, not OO.

Hope this helps..

Julian Barnes · Answer

Thanks TC for the response and breakdown. I just had a few additional questions regarding your last post....

You said to "throw out" all those $100 DP's if I'm not living in it"

I'm confused about this statement, because I was told (thru H.U.D / FHA customer service/ Biggerpocket HUD forums) that you CANNOT REFI/SELL under 12 months w/o penalties, your ONLY option is to rent or livein it for 12 months, then REFI, SELL or whatever!
Please correct me of my greenness here if I'm mistaken in my info...

I also know, thru research diligence, that the 100 DP is NOT available to investors during the "Investor Bidding Period. The only time the 100 DP is valid/available is when bidding O/O.

My plan is to buy and RENT/HOLD for as long as humanly possible to reap all the benefits of long term home ownership. When the penalty period is over, THEN refi and go to the Super Bowl. -Well maybe not the latter, but the idea is there... :groovy:
Since I've got over $3000 to assist w/ paying my OWN c.costs/earnest, the ONLY thing now is to find a home that DEALS well. (i.e: good area, good numbers, etc.)

SO,..if my query is incorrect and needs correcting as I'm totally confused now...please advise...

Thanks in advance..

Jumungus "Let all that does not matter, TRULY slide!!" -Tyler Durden (Fight Club)

Tom C · Answer

Jug,

You can throw out all of those $100 Dp's and other programs if you are not going to live in the house. Those are only programs for OO. When you buy a HUD home you are buying it as is as an investor. There are many great deals on HUD's, but many you will also find completely trashed once you get inside the house. Trashed meaning full of mold and other issues that will require a total cleanout. So far my worse deal was a HUD home, but it was my first deal. If you planning on making an offer on a home, make sure you have POF letter, your broker cannot submit an offer without one.

To address your equity question. Everything you see other then the listed price and posting date on HUD's web site, don't bother. The appraisal value, inspection report and condition report are junk. The 2 reports are the same all the time, I don't think the inspector really even looks at the homes.

The equity you have in the home is based off what the local comps are for homes of near condition and detail as the home you are looking at. Then you figure in how much rehab is going to cost you and how much the home is worth after rehab. You take all of your expenses and subtract that from the after rehab value and theres your equity. As an example on my first deal which was a HUD

Purchase price = 21k CC = $1500 Rehab = $8K Holding cost = $600

total in $31K way too much!!

Appraisal for refi came in 5 months later for 64K. My equity = 33K. Not a bad deal for my first one, but all my mistakes came in during my first inspection of the house. Things I should have spotted, I missed which raised my rehab cost.

HUD Price Reduction vs. ARV questions?

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