I loved watching all of these people purchase their homes. The best part is seeing what they'd done with their new homes and how they made it "theirs". But owning a home seemed like a distant dream for The Hubs and me. A couple of years ago I started working on cleaning up my credit and paying off my bills. A couple of times The Hubs and I flirted with the idea of applying for a mortgage loan pre-approval, but vetoed the idea due to a lack of savings, credit scores, tighter qualifications, etc. And so it was decided that we would continue to be renters. We wished to move out of our cramped apartment and into a rental home.
We checked the newspaper, craigslist, Rent.com, Trulia.com, and drove around town looking for "For Rent" signs. One afternoon, as we drove around looking for rentals in our dream neighborhood, we spotted our diamond in the rough. My husband noticed a sign in the front yard that said HUD. We did a loop around and came back to the house to further investigate the sign. And sure enough, the home was a HUD-owned property.
The discovery of this house gave us hope. We visited www.hudhomestore.com to verse ourselves in everything HUD. Now prior to discovering this home, if you were to ask what I knew about HUD home buying programs and houses? I would have said that they were in poor, typically "bad" neighborhoods, and that the houses needed A LOT of work. But after researching HUD properties, I discovered that my beliefs just weren't true. The Hubs and I contacted a realtor with HUD experience to view the property. Unfortunately, there were only four realtors in our area with HUD experience and we were unable to get in touch with any of them. If you decide to go the HUD route, make sure that your realtor has dealt with HUD, it'll save you a ton of headaches. We were matched up with a realtor who specialized in short-sales and who assured us that she would be able to work closely with the HUD-experienced realtor.
Inside, not surprisingly, the house needed a lot of work. We had seen the pictures posted online but the amount of work needed didn't seem daunting. Immediately I could envision The Hubs and I living there. I could see what the home could be. Sure, it desperately needed new carpet. I don't think the carpet had been changed since the home was built in 1998, but it wasn't a deal-breaker. The home had never been updated, but it wasn't your typical bank-owned/HUD property. No giant holes in the walls, no foul odors. With a little paint and new flooring, it definitely had potential.
The property was insurable and eligible for the FHA 203K Renovation Loan (more about this in another blog). We hoped to get it for a steal, but didn't want to get our hopes up without going through a mortgage pre-approval. We made an appointment with a broker and, to our surprise, we were approved! We didn't qualify for much, but after discussion and seeing one other non-HUD home, we decided to throw all caution to the wind and bid on "our" home. If we could get this home at an amazing deal, then we'd be able to do the necessary renos and still have considerable equity in the home. It would be our chance to financially secure future.
But how low could we go? You hear all the time about people getting amazing deals in the post-bubble market, but would it happen to us? The home was originally listed at $166,000, which was also the "as-is" value of the home. After one price reduction, it was listed at $149,900. Even at the "as-is" price the house was an amazing deal. Comprable homes in the neighborhood start around $200,000. Unfortunately, at that list price, the home was out of our range considering the amount of renovations that were needed. Faling back on my English teacher ways, I researched bidding strategies for HUD owned homes and found out that the bidding process was quite different from that of traditional sales, short sales, and foreclosures.
To begin, HUD does not negotiate price. Your bid must be made through www.hudhomestore.com by a realtor. When a home is initially listed, it must go through a ten-day window. During this time, bids can be made, but none are opened until the window expires. If none of the bids are deemed acceptable, than the sale is extended and bids are opened daily. If you submit a bid that HUD deems too low, your bid will automatically be rejected. HUD sets a "secret" minimum acceptable bid and any bids below that number are rejected automatically. It's up to the buyer to guesstimate what the acceptable minimum price is. But, there are also other factors involved with getting accepted. Owner-occupiers have top priorty over second home buyers and/or investors. After digging around the internet, we found that others had been accepted with bids ranging from 50% of asking price to bidding over asking. 83% of the asking price seemed to be the magic number. Discouragingly for us, 83% of the list price would still be too much after factoring in renovations.
Ultimately we decided to submit a lowball bid. We offered $105,000. For the next 24 hours, or what seemed like an eternity, we crossed our fingers, held our breaths, and barely slept a wink. Finally our realtor called and informed us that our bid had been rejected. Disappointed but not out, we decided to try again and increased our bid to $115,000. That was our best offer, we couldn't go one penny over $115,000 though because we needed to budget for the renovations. Again it was rejected. Feeling defeated and disappointed, we took a break from the process, went on with our summer vacation plans, but kept an eye on the listing For the next few weeks that house stayed on the market listed at $149,900 with no changes. Each day I would wake up fearing to see the house missing from the website (which means that a bid has been accepted). Yet each day I was relieved when I found that our little house still listed on the website.
The night we returned from our summer vacation, we discovered that the list price had decreased to $134,400! Without giving it a second thought, we decided that we had to take another shot. We debated the number. We went back and forth, and in the end we settled at $105,000. We wanted to get a deal, but we didn't want to lose it to someone else because we had put in an offer that was too low. 24 hours later, we found out that our bid was accepted! We were beyond ecstatic. They accepted our the price of our original bid and we couldn't have been happier. If we only knew the trouble that lay ahead for us, we wouldn't have been so quick to celebrate.
If you think that buying a HUD property will be easy, think again. Unless you are a cash buyer, it is a difficult process. Throw in another government backed program like the FHA 203k Rehab loan and you have a nightmare. Our bid was accepted on August 4, 2011 and we didn't close until December 2, 2011. Yes, you read that correctly---we were in limbo for four months on a bank-owned vacant property. I have friends who bid on short sales, closed, and moved in before we even knew our closing date.
My advice: unless you have a lot of patience, pass on the HUD/203K loan combo, it is a nightmare. The entire process of buying a home is stressful enough without compounding it with HUD, 203k Rehab loans, not to mention being first-time home buyers. But...if you have the patience and are getting the deal of a lifetime (like we did), you have to go for it and keep the end result in mind. If it weren't for the instant equity that we had in our home, we would've walked away at least ten times during the process. Now that we are here, things have yet to settle, but that story I must save for another blog.
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