There are as many mistakes as there are loan programs. Homes are not staying on the market as long as they used to and some agents at the advice of some lenders are telling buyers to overbid on HUD properties.
This can turn out to be a disaster
If your offer price is greater than the appraised value for the property FHA guidelines will limit the underwriter to insuring the loan for the lower of two values:
• The appraised value
• The offer price
Since the offer price is higher than the appraised value, the FHA underwriter will require that the buyer(s) cover the overbid amount with a cash deposit. The buyer(s) will not be allowed to build the overbid amount into an FHA loan. HUD’s mortgagee letter 2000-27 will require that the FHA UW use the appraisal supplied. This mortgagee letter instructs the Underwriter not to obtain a new appraisal; nor can the FHA Underwriter request that new comparables be pulled and the appraisal updated. If you were unaware of these guidelines, the options available to you are:
1. Proceed with contract execution. We will require that the selling broker verify that the cash reserves are available to cover the overbid amount before we execute the contract.
2. Use cash or conventional financing. All of the guidelines outlined above apply to FHA financing only. A conventional lender will have their own set of guidelines not governed by HUD.
3. Use the FHA streamline 203(k) loan product. This loan product will require that an “As Repaired” appraisal be obtained. The cost of this appraisal will be the buyer’s cost to bear; but the entire bid amount can be financed by the loan. Please work with your FHA lender for the specifics on this loan program.
4. Cancel prior to contract execution. If there is an acceptable backup, we will award tentative acceptance to the backup offer. If there are no acceptable backup offers, the property will be re-listed.
Be leery when you are advised to overbid.
Always positive information, never negative, always on time and keeping you informed on what’s new in the processing and underwriting of your mortgage loan application.
Robert B. Summers
Senior Client Services Administrator
Southwest Funding, LP Branch 777
2105 N. Meridian St. Suite 101
Indianapolis, IN 46202