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Looking to buy a coworkers house. Loan assumption no longer permissible?
Posted on 1/15/20 at 6:05 pm
Posted on 1/15/20 at 6:05 pm
Background:
I'm trying to get out of renting. A coworker of mine is selling his little rental property which he still owes about $20K on. He is willing to sell it to me for a value evaluation of $70k, which he estimates is less than market value by at least $10k, which on the face of it appears pretty plausible. My intentions were, pending an appraisal and everything checking out in respect to the property's worth, to pay him $50k upfront and assume his mortgage for the remaining $20k. My thinking being that it would allow me to avoid taking out a full loan and paying the interest incumbent with taking out a full loan. I was also thinking that it would perhaps save some money on closing costs, but I'm a first time home buyer and I'm not familiar with the tradeoffs or if there even are savings from doing it that way.
I called the local bank he has his mortgage with and the representative I spoke with indicated that mortgage loan assumptions were no longer permitted since new regulations were put in place following the 2008 financial crisis. My limited online research led me to be believe that they are permissible so long as the lender agrees. Is this not the case?
Should I just take out a traditional home loan and be done with it?
I'm trying to get out of renting. A coworker of mine is selling his little rental property which he still owes about $20K on. He is willing to sell it to me for a value evaluation of $70k, which he estimates is less than market value by at least $10k, which on the face of it appears pretty plausible. My intentions were, pending an appraisal and everything checking out in respect to the property's worth, to pay him $50k upfront and assume his mortgage for the remaining $20k. My thinking being that it would allow me to avoid taking out a full loan and paying the interest incumbent with taking out a full loan. I was also thinking that it would perhaps save some money on closing costs, but I'm a first time home buyer and I'm not familiar with the tradeoffs or if there even are savings from doing it that way.
I called the local bank he has his mortgage with and the representative I spoke with indicated that mortgage loan assumptions were no longer permitted since new regulations were put in place following the 2008 financial crisis. My limited online research led me to be believe that they are permissible so long as the lender agrees. Is this not the case?
Should I just take out a traditional home loan and be done with it?
6
Posted on 1/15/20 at 7:14 pm to ChewyDante
quote:
they are permissible so long as the lender agrees.
This was my belief but it sounds like the lender does not want it to happen.
Posted on 1/15/20 at 8:15 pm to ChewyDante
You have 50k cash but not 70k?
Posted on 1/15/20 at 9:21 pm to Mr.Perfect
quote:considering 70k is a 40% increase from 50k, that's kind of a stupid question.
You have 50k cash but not 70k?
Posted on 1/15/20 at 10:17 pm to ChewyDante
quote:I’m not exactly sure what you mean by this. Do you mean that since you pay more interest on initial payments, and gradually pay more towards principal, that you want to avoid the interest payments?
My thinking being that it would allow me to avoid taking out a full loan and paying the interest incumbent with taking out a full loan.
That being said, since his initial loan amount was higher than what you would take out for a new loan, your payments would be higher on his and you could always take out a shorter loan and/or pay more towards principal. You may be even able to get a lower rate on top of that.
Unless you have a terrible credit score, which seems unlikely given how much you’ve saved (unless you don’t really have a credit history), I don’t see too much of a disadvantage of taking out a new loan. And in fact, it may be even more advantageous to do that.
Posted on 1/16/20 at 7:01 am to ChewyDante
You can pay him the cash and just get a mortgage/loan for 20k to pay off his note.
You can buy subject to existing mortgage and just not tell lender...they typically have a clause which will allow them to accelerate the loan if they find out and choose to do so. This method does put seller at risk of you defaulting or paying late, which would damage his credit, not yours. That seems unlikely given info provided but still possible.
Closing is kinda expensive. A basic loan for 20k would likely be less costly.
Odd to hear of someone with 50k cash buying a first house...for 70k total. Congrats. Dunno if you are a miser, frugal, easily pleased, or something else altogether but financially responsible has to be recognized.
You can buy subject to existing mortgage and just not tell lender...they typically have a clause which will allow them to accelerate the loan if they find out and choose to do so. This method does put seller at risk of you defaulting or paying late, which would damage his credit, not yours. That seems unlikely given info provided but still possible.
Closing is kinda expensive. A basic loan for 20k would likely be less costly.
Odd to hear of someone with 50k cash buying a first house...for 70k total. Congrats. Dunno if you are a miser, frugal, easily pleased, or something else altogether but financially responsible has to be recognized.
Posted on 1/16/20 at 7:26 am to ChewyDante
I apologize if I missed it, but I didn’t see any mention of the terms on his current mortgage. What’s the rate and how many years are left? If he bought it as an investment property, the rate and terms *may* not be all that attractive. But I don’t know.
Most mortgage brokers and mortgage banks won’t want to fool with a loan that small. Maybe approach the bank where you’ve been holding your $50K and see if they’ll work with you on a 10 year (or whatever you’re seeking) portfolio mortgage. I have a feeling that you’re the sort of customer that they’d be happy to work with. Good job on that savings.
Most mortgage brokers and mortgage banks won’t want to fool with a loan that small. Maybe approach the bank where you’ve been holding your $50K and see if they’ll work with you on a 10 year (or whatever you’re seeking) portfolio mortgage. I have a feeling that you’re the sort of customer that they’d be happy to work with. Good job on that savings.
Posted on 1/16/20 at 8:45 am to Jag_Warrior
Lost in everything in this thread is that mortgage lenders are not likely to make a loan for $20k. The minimum loan amount is usually $50k.
Posted on 1/16/20 at 8:54 am to VABuckeye
Right...but with 50k sitting in bank, they will likely give him 20k. He can then get a HELOC or refi, depending upon his situation and wants.
Posted on 1/16/20 at 8:58 am to Milesahead
Minimum loan amounts. They aren't going to deviate from that because he wants to put $50k down. They make no money on a $20k loan.
His best bet would be to go to closing and payoff the existing mortgage and have the seller hold a note for the $20k.
His best bet would be to go to closing and payoff the existing mortgage and have the seller hold a note for the $20k.
Posted on 1/16/20 at 9:46 am to VABuckeye
What I was talking about wouldn’t be a conforming GSE backed mortgage. It’s a “portfolio” loan (the bank continues to hold the loan, instead of trying to sell it). The rate may be a bit higher and the terms not so generous. But they’re made based on a person’s relationship with the bank(er) as much as anything else. Smaller loan amounts aren’t kicked out the way they’d be with a GSE (FNMA/FHLMC) product. I’ve used them for investment properties that I wouldn’t be able to finance with more traditional means.
And yes, I agree... owner financing might be another viable option. Don’t know til you ask.
And yes, I agree... owner financing might be another viable option. Don’t know til you ask.
Posted on 1/16/20 at 10:13 am to ChewyDante
Not aware of any national bans on this... but lenders make more money on closing new loans than they do on assuming old loans.
I think Chase does mortgages as low as 10K.
What if you just took out a mortgage for 50K, and then right after closing, make a 30K payment towards the balance?
I think Chase does mortgages as low as 10K.
What if you just took out a mortgage for 50K, and then right after closing, make a 30K payment towards the balance?
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