Congratulations! HUD homes can be great values. Yes, they can and often do sell above the listing price. As you noted, the listing price is already below the as-is appraised value. Where to price your bid depends on a variety of factors, including the listing status and how much of your closing costs you'd like HUD to pay for. It's usually best to figure this all out in discussions with your Realtor and your mortgage advisor (financing plays a major role in developing a proper bid amount).
HUD homes result from foreclosures on properties that had FHA-insured mortgages. The foreclosing lender turns the property over to HUD, which takes title and then re-sells the property to the general public. These properties are known as "HUD Repos" or "HUD Homes" (not "bank-owned" or "bank REO" properties). For the first 10 days a HUD home is offered for sale, bids are accepted only from buyers who would be owner-occupants (that is, buyers who would actually live in the home as their primary residence). After that, if no acceptable bid was received, then the bidding is opened up to everyone.
HUD homes are appraised and inspected before they are listed for sale. The inspection report is available to anyone who's interested. The appraisal is an FHA appraisal, and any FHA-required repairs are identified for you right up front. Both the as-is market value and the estimated cost of any necessary repairs are available from the moment you see the offering price (which is generally lower than the appraised value). This is a distinguishing feature of HUD homes, as opposed to bank-owned properties.
HUD homes can be purchased with cash or any type of financing, whether conventional or government. But these properties are ideally suited for FHA financing for owner-occupant buyers (FHA purchase mortgages are available strictly for primary residences). Bear in mind that HUD 'owns' FHA, and part of their mission is to promote homeownership. That is why bidding on HUD homes is restricted for the first 10 days and investors are excluded. That's why HUD homes are listed with an FHA appraisal having already been performed. That's why the property details for HUD homes indicate right up front whether the property is eligible for regular FHA financing, or would need an FHA loan with a repair escrow, or would need an FHA rehab loan. There's no guesswork or uncertainty involved. They've made it as easy as possible - light years better than trying to buy a bank-owned property or a short sale.
They've even created a special financing program to help make it more affordable than ever for people to buy these HUD homes. What is the # 1 obstacle to homeownership? The down payment. For regular FHA loans, the minimum a buyer must put into the deal is about 3%. That's far less than the 20% standard down payment with conventional financing that many in the public unfortunately believe is required. But still, 3% can be difficult. Buying a HUD home can make that obstacle disappear. If you buy a HUD home that you'll move into as your new primary residence, there's a special HUD/FHA program that waives the normal borrower contribution requirements and only requires a $100 down (yes, just a hundred bucks). The loan amount can be higher than the purchase price to help cover closing costs and necessary repairs. Any FHA-required repairs up to $5,000 can be escrowed into the loan and completed after closing. (Regular FHA loans do not allow required repairs to be completed after closing.) If the required repairs are greater than $5,000, the $100 down program would not be appropriate, but FHA rehab loans are available that allow you to buy a home and make repairs and renovations that cost much more than $5,000, all in a single, safe, fixed-rate government loan that closes at the time of purchase.
We offer these special government loan programs and many other home financing solutions. Please feel free to contact me for more information: James Wheeler, 813-600-3428.