A recent change in the housing market has flown
under the radar. It's time to talk about this change from the U.S. Department of Housing (HUD) in relation to HUD-owned homes, FHA loans and over-bidding.
The video below covers the change, and how it could affect home buyers from the point of view of some experts. Renovation Lending Program Manager Joe Daly and REALTOR® C. David Howard weigh in on the HUD overbid rule change.
See the embedded video here - HUD / REO Overbid Rule Change
Video transcript: A subtle change by the Department of Housing could have a major impact on today's housing market. The change affects HUD-owned homes ... those houses foreclosed on by HUD in the last few years. Basically it's this: a buyer who over-bids on a HUD home is supposed to bring in the difference between the offer and the listed value -- in cash. This means your average buyer using an FHA loan wouldn't likely be able to compete with investors, thereby missing out on some good deals.
For deeper detail on what this change is ... and how it may affect home buyers ... we went to the experts.
"In a recent change what happened was FHA came out with a new ruling that said for a 203k loan," says Joe Daly. "The buyer doesn't need to pay any additional moneys when they overbid on a HUD owned property."
Renovation lending program director at AmeriFirst Home Mortgage, Joe Daly says the change takes into account the after-improved value of a home, once renovations are made, rather than the "current value" of the house. With the FHA 203k loan, borrowers can now bid on a HUD home based on what the value of the home WILL be, not what it is.
Joe goes on: "What's true about housing stock that's like that is the fact that it sells below, below market value, because who in the world knows that you can actually get a loan and renovate and use the moneys for the special loan and renovate the home so because of that people will buy the home, in my example let's say they buy a home for 70,000 doesn't really matter, but then they want to put 20,000 in it ideally we have a lot of times with an appraisals where the appraisal will come in 100 or 104, building instant equity for the buyer. So the fact there's a gap there between 70 and 100 if that's the after improved value it always doesn't need the full 30,000 renovations, and then to my point, maybe only 10 or 20% of the time does it need that much repairs just to make it worth that, so homes in need of repairs sell below market value because they're in a deferred maintenance situation."
Century 21 Realtor C David Howard says this overbid change could help buyers, sellers and entire neighborhoods. "It's always better to have an owner/occupant in a home in any neighborhood than to have an investor come in and flip it."
Howard says the change makes sense when you put it into dollar amounts.
"Well, whatever it's on the market for if you were to overbid, let's just say it's on the market for 50,000, if you wanted to make sure you got the home cause you see a lot of activity and you wanted to bid 60,000 for it which you know was maybe worth that, then you would have to bring in the extra 10,000 now, you won't have to bring in that extra 10,000 dollars you can get it with the minimum down. it just opens doors for a lot of people in that price range."
Joe says it's a positive change: "I think it's a great thing, I think it was always miscalculated of why HUD wouldn't do that, um I think it was just an over site on their part, I think HUD recognizes not that hey, if the lenders going to give them the loan, based on the future value, what does it matter what the as is value is 9:00 because on a regular purchase, on a regular FHA loan, if I was to buy your home one that is owned by a private seller, they don't care what my as is value is, I ignore it. What the lenders concerned with is if you're going to buy it for 70 and put 30 in it and that's 100 can it appraise for 100 and buy it why sure right so, all renovation loans homepath, homestyle, 203k's always based on after improved value, so this having this, kind of old antiquated rule to say you can't overbid on a as is value... why not?? Right!"
So now with HUD homes, average buyers looking to use FHA loans can go with the 203k renovation mortgage, bid above the listed price, and use the loan to finance the purchase and renovations.
To learn more about renovation loans like the FHA 203k, click right here to go to a renovation loan resource center. For AmeriFirst Home Mortgage, I'm Dan Moyle. Thanks for watching.
Thank you to C. David Howard for weighing in on this housing market news. http://www.cdavidhowardrealtor.com/index.html