Loan Assumption as a form of no money down?

Question

I'm new here, have zero deals... well I kinda have had two but not under the aspect of wanting to do this for income. I got divorced in 2014 gave my ex the house but if she sold it I got half the profit, if she kept it she had to re-fi it into her name. She couldn't re-fi so she decided to sell it, her realtor told her a few things that needed fixed and she couldn't afford to fix them. I on the other hand could and with my name still the only name on the loan for the house I told her she could move I would give her $1,500 and I would retake the property. The note had $108,800 left plus the $1,500 to her and I spent $2,800 on repairs on the house. The house is 10 minutes from Wright Patterson AFB, Dayton Ohio and is a 4 bed, 2 bath ranch, full basement, new roof, new Central heat and A/C, Detached 2.5 car garage, fenced back yard on .38acres. Appraisal on the property was about $135,000. I put it on the market for $140,000 finished price as I worked on doing the paint and repair work. I had someone bug me for two weeks to come look at it as is and I let him look at it. He made me an offer to stop working on it and buy it as is for $128,000. After some negotiating I offered him to Assume my VA loan of $108,800 @ 3.75% and cash out at closing to me for $22,000 this would give me the profits I wanted, and him the total price he wanted, at his $128,000 offer he would have had $7-8,000 in closing costs. He took the deal and we both benefited.

Now for my question, does anyone do this with Banks? I know it's an option to chase pre-foreclosers with owners failing to make ends meet. I feel like a bank who is about to Auction off a property for a lost of money would like the idea of maybe having someone assume the previous owners loan and rate. The person assuming the loan would only have about $800 worth of inspection and Title work for the transfer. No money down and no closing costs. Is anyone doing anything like this? It could then turn into a BRRR or flip. I feel like this would be a good way for someone to start with, I make great money, but I have been paying student loans off and not saving cash. Thoughts?

Now for my question, does anyone do this with Banks?  I know it's an option to chase pre-foreclosers with owners failing to make ends meet.  I feel like a bank who is about to Auction off a property for a lost of money would like the idea of maybe having someone assume the previous owners loan and rate.  The person assuming the loan would only have about $800 worth of inspection and Title work for the transfer.  No money down and no closing costs.  Is anyone doing anything like this?  It could then turn into a BRRR or flip.  I feel like this would be a good way for someone to start with, I make great money, but I have been paying student loans off and not saving cash.   Thoughts?

Andrew Postell · Answer

@David Roe the short answer to your question here is that you cannot assume a FHA loan as an investment property.  You must live in it.   So if you want to live in the property you can assume the loan. Conventional (Fannie/Freddie) loans are not assumable.  But to assume an FHA/VA/USDA loan you would have to qualify for that loan.  And to qualify for that loan you would need to meet their guidelines.

I'm not sure how a non-veteran qualified for a VA loan in 2014 but you would 100% need to be a veteran today, in good standing with the VA, in order to assume a VA loan.

You can research "subject to" strategy which would be an alternative method to receiving a property with little are no out of pocket.

Hope this helps in some way.

Roger Smart · Answer

@David Roe You said you are new and so I welcome you. @Darrin Carey hosts a local meetup in the Dayton area. The next one is at the TJ Chumps in Fairborn on Monday from 6 to 9. We have a private room and have anywhere from 50-100 other local investors and vendors involved in real estate. It's informal and super chill, no sales folks. If you're interested in getting involved in real estate you should come check it out.

To answer your question, I do know folks who work with banks to purchase the note, then they negotiate with the current owner of the home to either start making payments, leave the property (cash for keys), or they have to end up foreclosing on the property. I am not sure how this would work with loan assumption. In my estimation, the party that owned the property would have to be on the same page, as they would have to sign their loan over to you. Maybe a direct mail strategy to distressed home owners would be the best way to go about this. Offer to make their payments to prevent their foreclosure, on the terms that they left the property. Granted there is likely a bunch of legal hoops to jump through (consult with an attorney as I am not one), but I could see how this strategy could work to acquire rentals or flips.

David Roe · Answer

Jaysen,

So the deal I did with my old property he brought a check at closing for me, well he paid the title company they cut me a check for 22,000.  The 108,000 is still used up in my VA benefits but I am still eligible for $331,000 purchase on a VA loan if I wanted to use the rest of my benefits.  they have some crazy math formula for defining eligible benefits and the math is different in every state. He purchased the house for

My question is for not just VA but for FHA and others, most loans are assumable.  And even for the VA loan the person that assumed my loan was not a veteran and still was able to assume my loan.  I was removed from all responsibility of the loan and it is no longer on my credit report.  I am asking if any of you all have seen or done this with assuming a loan of a property from either a Bank owned foreclosure or pre foreclosed.  Instead of buying a property and paying closing fees why not assume the loan from the bank and the possible better Rate than possible today of current rates and very little cost of Title work?

Jaysen Medhurst · Answer

@David Roe, I'm not an expert, but my concern would be that this is a VA loan. My gut says that's the kind of thing that would be specifically prohibited. Is the buyer a vet? Even if he can assume, the bank will have to approve him.

What does this mean for you? Can you get another VA loan or does this still "count as yours?" VA loans are great, but I believe you can only have 1 at a time. I wouldn't want to take that out of my tool box.

Lastly, you wrote "...and cash out at closing tome for $22k..." Is he giving you a check for $22k at closing? There is no "cash out at closing" because there's no refi.