I met Norman and Annette at a HUD property they wanted to see yesterday. They had several questions about the home, including whether they could borrow extra money to add a pole barn.
They have FHA financing so they could borrow extra money for repairs or renovations through either a 203K or a 203B FHA loan but that money cannot be used to build a garage or a pole barn.
Another question they had was what happened if they bid more than full price on the home, some of the HUD homes are priced very well and bidders will offer higher than full price when they know there will be a lot of competition.
The answer to that question for an FHA borrower is, yes, you can bid more than full price but you have to be prepared to make up the difference in cash. On a HUD property, an FHA appraisal is done when it's put on the market, therefore your lender will have to use that appraisal for the value of the home.
If your financing is conventional your lender will do their own appraisal and if they determine the property is worth what you offered than they will lend that amount. Of course, a cash offer has no restrictions as there is no lender or appraisal involved.
A conventional loan on a HUD property can have it's own set of complications. If you offer on a property that needs repairs, the appraiser will come and look at the home and sometimes call for repairs that need to be made before the loan can close.
On a HUD property or any other foreclosure the properties are sold in "as is" condition and the sellers will not do repairs. The buyer is not allowed to do repairs on the property until it closes, so you become stuck in a Catch 22 situation.
There are good deals to be found in both HUD properties and other foreclosures, and with the help of a knowledgeable Realtor and lender, you can own one of these homes. If you understand the complexities involved - and there can be many - this is an excellent market for buyers.