Can you really get a good deal on a HUD home in Denver? I would say 75% of all new buyers I meet with tell me they want to buy a HUD home and a HUD home only. I assume that so many buyers think a HUD home is the way to go from advice they have heard from a friend or the media. And while buying a HUD home, essentially a government foreclosure, can be a great investment and a good deal, there is a lot more to consider before you set your sights solely on a HUD home.
The great thing about HUD homes is that they usually priced below market value. The government wants to move them quickly and in order to do so, they are priced very aggressively. And like with anything priced aggressively, there is going to be extra demand. As a result, you often see HUD homes selling for above asking price. Most are priced so that if they do sell above asking price they are still a good deal, but unfortunately, it isn't that simple.
If you are planning to use FHA financing to buy a home, which most buyers do use for the great rates and the ability to only put 3.5% down, then going over asking price can be difficult. All HUD homes are appraised before they hit the market and this appraised value which is also the asking price is the top price you can get an FHA loan for. That means you have to pay cash for any dollar amount over the asking price you offer.
Let's take this home at 2655 Raleigh as an example. The asking price was $215,000 and it sold for $226,000 with no seller concessions, meaning the buyers paid their own closing costs, roughly $5,000 or so. When you factor in the 3.5% for down payment, the closing costs and amount above asking price the buyers had to pay for, the amount due at closing was $24,000, a far cry from the 3.5% they were probably planning on.
It is very common for HUD homes to get bid up like this and most buyers aren't looking to put this much money down on a home, especially if they were planning to go with FHA for the low down payment. There are alternative financing methods to get around this but typically they are going to require more out of pocket than your standard FHA loan.
The other factors to consider, like any foreclosure or short sale, is the condition of the property. Most HUD homes have been sitting vacant for close to a year with no upkeep and many are in pretty rough shape. The price accounts for this typically, but by the time you put the money in to fix it up, you can easily have sunk as much into the home as the non-foreclosure next door sold for that didn't need work. And while bidding on a HUD home is fairly simple, it can often be frustrating since they do get bid up so often and it usually takes three or four tries before one finally sticks.
Because of these reasons listed, of the 75% of my buyers who start out wanting a HUD home, I would say only about 5% actually end up buying a HUD home in the end. I certainly don't want to discourage you from looking at HUD homes because they can be a great deal, but try to keep an open mind about homes other than foreclosures and short sales because odds are pretty good that is what you will end up with in the end.
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