Assumable loans

[Villanelle]

We are at least 18 months out from buying a personal residence, but I'm starting to do some research.  One option I'd like to learn more about is assumable loans (most likely of the VA variety).  Can you get an additional loan, and if so, does it act as a 2nd mortgage?  Would that be harder to get and/or more expensive. 

IOW, let's say the home costs $800,000.  The seller has $450,000 left on the mortgage.  If we put down $200,000, then assumed the $450k loan, we'd need an additional $150,000.  Could we apply for a regular mortgage for that amount? 

Clearly, with mortgage rates much higher than they were a year+ ago, assuming a loan becomes a much better deal.  With VA loans, since we have eligibility, the seller could let us assume their loan and then retain their VA eligibility for another purchase so, as I understand it, there's be no real reason for them not to. 

Just wondering what I might need to know about doing this.  I've learned the basics, but wondering if there are any tripping points or cons I'm not seeing.

[Valvore]

Following. This would be a great solution to high interest rates. You'd get to keep someones low rate and only have a small portion at a high rate.

I don't know the answer to this but my first thought is that a lender might be hard to find for this. Especially because the VA loan would be the primary lien and takes priority over the seond mortgage (piggyback morrgage?). From the brief internet search I did, it looks like it has to be a home equity loan and not a tradtional mortgage in order to assume the loan so the rate would be higher than just a home loan. Also try looking up a piggyback loan.

If there is a sepcific property you were looking at, I'd talk to the lender who owns the loan and see what their restrictions are for loan assumption (LTV ratios and such). And I'd contact your lender and ask about Home Equity Loans on a property you are in the midst of purchasing because typically Home Equity Loans are issued after you own the propert.

Very interesting topic!

[Villanelle]

Following. This would be a great solution to high interest rates. You'd get to keep someones low rate and only have a small portion at a high rate.

I don't know the answer to this but my first thought is that a lender might be hard to find for this. Especially because the VA loan would be the primary lien and takes priority over the seond mortgage (piggyback morrgage?). From the brief internet search I did, it looks like it has to be a home equity loan and not a tradtional mortgage in order to assume the loan so the rate would be higher than just a home loan. Also try looking up a piggyback loan.

If there is a sepcific property you were looking at, I'd talk to the lender who owns the loan and see what their restrictions are for loan assumption (LTV ratios and such). And I'd contact your lender and ask about Home Equity Loans on a property you are in the midst of purchasing because typically Home Equity Loans are issued after you own the propert.

Very interesting topic!

Definitely not a specific house.  I'm a year+ from even knowing what city/state we'd be shopping in.  I'm just researching a few likely locations and the subject happened to come up.  Mostly I was curious as a hypothetical, but we do have a neighbor who recently sold and unlike other homes, theirs sold in 3 days (multiple offers), and the price wasn't low.  I'm sure it was the assumable loan that did it. 

That said, we do own a rental property in another state, and it has a HELOC on it so we could take out money that way if we need to, though ideally we'd get a second, more traditional loan, if we happened to be fortunate enough to find an assumable loan. 

But mostly, I'm just curious about how it generally works, both as an abstract learning topic and because that way if it happens to come up, I won't be caught flat-footed.

[affordablehousing]

I always assumed the assumable loan meant you stood in on the first borrower's terms. That would likely mean a first trust position. You could pursue getting a second mortgage, but it would be much more expensive than the first. I would be prepared to pay the rest in cash, then get a heloc or second loan as you could later.

[clarkfan1979]

We are at least 18 months out from buying a personal residence, but I'm starting to do some research.  One option I'd like to learn more about is assumable loans (most likely of the VA variety).  Can you get an additional loan, and if so, does it act as a 2nd mortgage?  Would that be harder to get and/or more expensive. 

IOW, let's say the home costs $800,000.  The seller has $450,000 left on the mortgage.  If we put down $200,000, then assumed the $450k loan, we'd need an additional $150,000.  Could we apply for a regular mortgage for that amount? 

Clearly, with mortgage rates much higher than they were a year+ ago, assuming a loan becomes a much better deal.  With VA loans, since we have eligibility, the seller could let us assume their loan and then retain their VA eligibility for another purchase so, as I understand it, there's be no real reason for them not to. 

Just wondering what I might need to know about doing this.  I've learned the basics, but wondering if there are any tripping points or cons I'm not seeing.

I am interested in this topic as well. People do it. I'm not sure on the specifics. Pace Morby is the subject matter expert on "assuming the mortgage" within the context of the biggerpockets community. He has some youtube videos on how to do it.

Maybe, as a group, we can watch the video below and then critically analyze it.

https://www.youtube.com/watch?v=8oEwMeQQGQQ

 

[Dicey]

Funny, I thought assumable loans had gone the way of the dodo bird. I'd be happy to learn otherwise.

[Villanelle]

Funny, I thought assumable loans had gone the way of the dodo bird. I'd be happy to learn otherwise.

They definitely still exist. Our neighbor just did it.  (Not sure if they've closed yet.)  It may be primarily with VA loans though, as that's what they had and that's what I'e come across in my light research.  But you don't have to qualify for a VA loan to assume one.  It's just that if you don't qualify on your own, the seller has to be okay basically losing their right to get a VA loan, since the loan still counts against them.  In effect, they are lending our their eligibility to a non-eligible person, so they don't have it to use themselves.  If a person who qualifies for a VA loan assumes it, then the seller keeps/gets back their own eligibility to use on their next house. 

Anyway, definitely not a dodo, but the VA species may be the only one not extinct. 

https://www.rocketmortgage.com/learn/are-va-loans-assumable"

[Zamboni]

I'm happy for anyone who can get an assumable loan right now.

Because, frankly, most banks won't even let joint owners take one name off of the loan voluntarily even when both parties agree, the person who remains on the loan is very well qualified for it, and the other person files a quitclaim deed. So someone who originally took out the loan can't even "assume" the loan these days. They want the person who wishes to keep the property and loan to refinance and start all over, which is obviously a terrible idea right now. It's actually a scam if you ask me.

[Villanelle]

Funny, I thought assumable loans had gone the way of the dodo bird. I'd be happy to learn otherwise.

They definitely still exist. Our neighbor just did it.  (Not sure if they've closed yet.)  It may be primarily with VA loans though, as that's what they had and that's what I'e come across in my light research.  But you don't have to qualify for a VA loan to assume one.  It's just that if you don't qualify on your own, the seller has to be okay basically losing their right to get a VA loan, since the loan still counts against them.  In effect, they are lending our their eligibility to a non-eligible person, so they don't have it to use themselves.  If a person who qualifies for a VA loan assumes it, then the seller keeps/gets back their own eligibility to use on their next house. 

Anyway, definitely not a dodo, but the VA species may be the only one not extinct. 

https://www.rocketmortgage.com/learn/are-va-loans-assumable"

Ah, I knew I was missing something. I was trying to figure out why a seller would allow someone to assume their VA loan and lose their own status. I missed the part where if they sell to someone who qualifies on their own then they get it back. So essentially it would make no sense for someone with a VA loan to sell to someone who isn’t a veteran, unless they were desperate to get out of it, or not planning to own again or something similar.

Not necessarily.  We've bought 2 homes an in both cases we were able to do better with loan terms with a non-VA loan, even though we qualified for VA funding.  VA loans are great for someone who doesn't have a large downpayment. but otherwise they can be inferior choices. Had our eligibility been tied up in another since-sold property, it wouldn't have mattered at all to us since we found our VA options to be less desirable anyway. So if the seller plans to buy with a regular loan (or is planning to rent, or purchase a fixer that doesn't qualify for a VA loan) they may not care about losing their eligibility.  Or they may care a little but not enough to sell their house for significantly less in the current market, or have it sit unsold. 

The aforementioned neighbor, when we chatted on the street, said their buy was not VA eligible.  Seller is moving out of state, to a much cheaper area, and my impression is that they already own a home there, which presumably is either paid off or has a non-VA loan. 

[clifp]

Funny, I thought assumable loans had gone the way of the dodo bird. I'd be happy to learn otherwise.

They definitely still exist. Our neighbor just did it.  (Not sure if they've closed yet.)  It may be primarily with VA loans though, as that's what they had and that's what I'e come across in my light research.  But you don't have to qualify for a VA loan to assume one.  It's just that if you don't qualify on your own, the seller has to be okay basically losing their right to get a VA loan, since the loan still counts against them.  In effect, they are lending our their eligibility to a non-eligible person, so they don't have it to use themselves.  If a person who qualifies for a VA loan assumes it, then the seller keeps/gets back their own eligibility to use on their next house. 

Anyway, definitely not a dodo, but the VA species may be the only one not extinct. 

https://www.rocketmortgage.com/learn/are-va-loans-assumable"

Pretty good overview of what loans are assumable VA, just other agencies generally, but regular FNMA or Freddie Mac loans, are not assumable unless they are adjustable.

An adjustable FNMA loan maybe worth assuming because if was taken out before 21, you probably are near the lifetime cap. But very few people took out adjustable loans the last few years.

https://www.lendingtree.com/home/mortgage/what-is-an-assumable-mortgage/#:~:text=Fannie%20Mae%20%E2%80%94%20one%20of%20the,to%20a%20fixed%2Drate%20mortgage.

[SilentC]

Following. This would be a great solution to high interest rates. You'd get to keep someones low rate and only have a small portion at a high rate.

I don't know the answer to this but my first thought is that a lender might be hard to find for this. Especially because the VA loan would be the primary lien and takes priority over the seond mortgage (piggyback morrgage?). From the brief internet search I did, it looks like it has to be a home equity loan and not a tradtional mortgage in order to assume the loan so the rate would be higher than just a home loan. Also try looking up a piggyback loan.

If there is a sepcific property you were looking at, I'd talk to the lender who owns the loan and see what their restrictions are for loan assumption (LTV ratios and such). And I'd contact your lender and ask about Home Equity Loans on a property you are in the midst of purchasing because typically Home Equity Loans are issued after you own the propert.

Very interesting topic!

This would be a major issue, the assumed mortgage would be senior and the second mortgage would be junior and likely a few % above the prevailing FNMA rate if it is a rational lender (barring an oversized downpayment to cushion the loan) based on being a 2nd lien non conforming loan and the lender having to keep it on balance sheet.  So that starts to erode the attractiveness of the deal.  Also a rational seller will ask for more money for a house with an assumable mortgage and/or it will get higher offers from buyers, if advertised properly.  It doesn’t mean you won’t find some irrational seller or a credit union with an irrational underwriter.

[GilesMM]

The most important element will be to have extreme flexibility on the home you choose. You will have to eliminate all the non-assumable loans plus those who have them but won’t allow it plus those with too little loan balance left. All in your general area and price range. You will have to compromise on location, attributes, quality, etc. should be interesting!

[Dicey]

In HCOLAs and hot markets, VA loans aren't popular, so not much loan assuming happens in my neck of the woods. Good for you for exploring every option that might be available to you.

[Villanelle]

In HCOLAs and hot markets, VA loans aren't popular, so not much loan assuming happens in my neck of the woods. Good for you for exploring every option that might be available to you.

Our current market (DC) is odd because it is HCOL, but I'd guess there are more VA loans than in similar areas, thanks to the large amount of military and government workers here. 

But since I don't know that this is even the market we'd be buying in, that may well be a moot point.  For now, I am just trying to learn about a new thing. 

[Valvore]

There's a property I've been keeping my eye on for the last few months and just had my realtor reach out to see if the loan is assumable.

Previously purchased June 2022 for 700K, listed September 2022 at 740K with zero changes since purchase. It's dropped steadily every few weeks and now listed at 700K. I still think it's a bit over priced (they paid too much in June 2022) but the sellers seem like they are ready to drop the property.

Ideal candidate for an assumable loan (if it qualifies) because it would have the low rates of laste year and same asking price as purchased. Its a long shot to be assumable but thought I'd ask. It's almost exactly what we want our "final" home to be and I've been looking for several years so thought I'd ask.

Does anyone know of a way to do a search for homes on the market that have existing VA loans?

I also wonder how partial eligibility would work for assuming another VA loan.  We have partial eligibility because we have an existing VA loan for 360K. Lender I'm working with will allow us to get another VA loan up to the loan limits but have to make up the 25% of the price difference in remaining eligibility of down payment.  So (Loan amount (up to 747K) * 25%) minus (existing loan (360K) *25%) = 96.75K in remaining eligibility.
Example: (700K (Purchase Price) * 25%) - 96.75K in remaining eligibility = 78.25K cash downpayment required
If I'm assuming a VA loan that's already in place does that downpayment requirement go directly to the loan principle or something. No clue.

[SilentC]

I saw a house with an assumable mortgage yesterday, realtor thinks it’s listed significantly (20%+) over comps.  A confirming datapoint that sellers try not to give their low rate away for free.

[Villanelle]

I saw a house with an assumable mortgage yesterday, realtor thinks it’s listed significantly (20%+) over comps.  A confirming datapoint that sellers try not to give their low rate away for free.

Was it a VA loan, or just a regular assumable loan of some kind?

I've been reading more about VA assumables.  It seems rates on the secondary, gap-filler loans are quite high (as expected).  I've seen as high as 10% mentioned!  Of course, if you can pay cash for the difference between the seller's assumable loan and the purchase price, that's a moot point, or if the difference you can't cover isn't very much, there could still be significant savings, especially if you prioritize killing that high APR second loan.

Also, it seems these take forever to close.  I supposed from a lender standpoint, they aren't making much/any additional money, so it is low priority compared to issuing new loans.  I've seen mentions of 60-90 days to close.  So both seller and buyer need to be aware of and okay with that.  (Typically, it seems there is a rent clause to the buyer, or the seller is okay remaining in the house for an undetermined amount of time, and doesn't want or need to buy anything else, at least until after close.)  Those long closes make this process less attractive for sellers because they can't buy until the other house closes (in most cases) and it's hard to determine when that will be. 

Still, these are very clearly attractive.  One of my military facebook groups for the area has asks almost daily, with someone posting details for a house they are looking for and asking if anyone has or knows of an assumable loan on a place that meets their criteria.  I'd argue that these people are likely buying more than they can/should afford if that's the priority, and I suspect in many cases these people could end up with *higher* monthly payments due to the high interest second loans.  But people seem to be clamoring for assumable VA loans, so it does seem there is a market.

From the homes I've seen offered it, it doesn't seem like there is usually a huge premium--more that they are at the top or maybe just slightly over the expected range.  Probably a few % more than without the assumable loan, but nothing like 20%.  I suspect some of that has to do with those super high interest second loans that most sellers will need, which negate at least some--or in many cases much or all--of the savings from assuming the lower interest primary loan. 

[Michael in ABQ]

Does anyone know of a way to do a search for homes on the market that have existing VA loans?

Depending on your county, you may be able to see a copy of the mortgage online. Generally, it's the County Clerk's office (some states call it different things like County Recorder). In some counties you may have to pay $1 per page or some sort of access fee to see an actual copy of the mortgage that was filed. In other cases it can be viewed in person at the County office - sometimes for free or sometimes for a small fee.

I seriously doubt there's any easy way to aggregate that data. There are just too many government systems - each with its own idiosyncrasies - and it's a lot of information to process.

[Villanelle]

There's a property I've been keeping my eye on for the last few months and just had my realtor reach out to see if the loan is assumable.

Previously purchased June 2022 for 700K, listed September 2022 at 740K with zero changes since purchase. It's dropped steadily every few weeks and now listed at 700K. I still think it's a bit over priced (they paid too much in June 2022) but the sellers seem like they are ready to drop the property.

Ideal candidate for an assumable loan (if it qualifies) because it would have the low rates of laste year and same asking price as purchased. Its a long shot to be assumable but thought I'd ask. It's almost exactly what we want our "final" home to be and I've been looking for several years so thought I'd ask.

Does anyone know of a way to do a search for homes on the market that have existing VA loans?

I also wonder how partial eligibility would work for assuming another VA loan.  We have partial eligibility because we have an existing VA loan for 360K. Lender I'm working with will allow us to get another VA loan up to the loan limits but have to make up the 25% of the price difference in remaining eligibility of down payment.  So (Loan amount (up to 747K) * 25%) minus (existing loan (360K) *25%) = 96.75K in remaining eligibility.
Example: (700K (Purchase Price) * 25%) - 96.75K in remaining eligibility = 78.25K cash downpayment required
If I'm assuming a VA loan that's already in place does that downpayment requirement go directly to the loan principle or something. No clue.

It seems most RE listing for these homes very clearly mention in the write-up that it has an assumable loan.  If you have MLS access, you could just search for the word "assumable" in the listing.

As for eligibility, I didn't quite follow your example.  But if the buyer doesn't have their own VA eligibility, then it remains under the seller's eligibility, meaning they can't buy another home with a VA loan (or can only use any remaining eligibility).  If the buyer has their own eligibility, the loan transfers to their eligibility, freeing up the seller's ability to use a VA loan in the future.  If I understand your question correctly, then no, the existing loan wouldn't count as a portion outside your eligibility. It would be you getting a VA loan, but by assuming it instead of having a new loan issued, so the same rules would apply.  (If the seller was willing to keep the loan under their eligibility, you *might* be able to double up, but I am doubtful they'd allow that. And most sellers don't want to keep their eligibility tied up.)  So if you only have $387k in VA loan eligibility, you could only assume a loan of $387k or less, and you'd have to finance the rest with either cash or with a very expensive second loan. 

[SilentC]

I saw a house with an assumable mortgage yesterday, realtor thinks it’s listed significantly (20%+) over comps.  A confirming datapoint that sellers try not to give their low rate away for free.

Was it a VA loan, or just a regular assumable loan of some kind?

I've been reading more about VA assumables.  It seems rates on the secondary, gap-filler loans are quite high (as expected).  I've seen as high as 10% mentioned!  Of course, if you can pay cash for the difference between the seller's assumable loan and the purchase price, that's a moot point, or if the difference you can't cover isn't very much, there could still be significant savings, especially if you prioritize killing that high APR second loan.

Also, it seems these take forever to close.  I supposed from a lender standpoint, they aren't making much/any additional money, so it is low priority compared to issuing new loans.  I've seen mentions of 60-90 days to close.  So both seller and buyer need to be aware of and okay with that.  (Typically, it seems there is a rent clause to the buyer, or the seller is okay remaining in the house for an undetermined amount of time, and doesn't want or need to buy anything else, at least until after close.)  Those long closes make this process less attractive for sellers because they can't buy until the other house closes (in most cases) and it's hard to determine when that will be. 

Still, these are very clearly attractive.  One of my military facebook groups for the area has asks almost daily, with someone posting details for a house they are looking for and asking if anyone has or knows of an assumable loan on a place that meets their criteria.  I'd argue that these people are likely buying more than they can/should afford if that's the priority, and I suspect in many cases these people could end up with *higher* monthly payments due to the high interest second loans.  But people seem to be clamoring for assumable VA loans, so it does seem there is a market.

From the homes I've seen offered it, it doesn't seem like there is usually a huge premium--more that they are at the top or maybe just slightly over the expected range.  Probably a few % more than without the assumable loan, but nothing like 20%.  I suspect some of that has to do with those super high interest second loans that most sellers will need, which negate at least some--or in many cases much or all--of the savings from assuming the lower interest primary loan.

It’s VA and one would need to bring about 40% downpayment.  The math really doesn’t work out unless it’s closer to comps and closer to 20%-25% down, the current math only works if you assume there is no such thing as a refi and you are locked into a high 6% rate forever on a comparable property with a new mortgage. Also interesting re the long close, I would not have expected that since in theory you just need to demonstrate you are at least as good of a credit as the seller.