Is a VA Assumption Worth More Money?

[Sean Hudgins]

How much is the ability to assume a loan at 2.25% worth? 

Let's say I have a property that I want to sell and I have a VA loan on it. Let's also say that the property is occupied by a tenant who will be vacating in 30 days and I'm willing to leave it vacant for up to 120 days as needed to complete the assumption process. My goal would be to get the top dollar for the house. Let us also say I am willing to carry the second position note for someone assuming the loan. details below on the property ( I will use a property I own and could theoretically do this with... though not planning to). I would want an eligibility swap. My goal is to see what if any amount over normal market value you would pay to be able to assume the loan / What would you change about the deal?

Location: Chesapeake, VA (large military town)

Market Value: $360,000

Loan Balance: $245,000

Equity/Second position note: $115,000 (30 30-year amortization / 10-year Balloon Payment, 6.5% Interest, $727 monthly payment) - Bringing cash for this would save a ton of money for the buyer.

Rate: 2.25%

Years Left: 26

Current Monthly payment: $1,300 (including taxes/insurance)

Current Rent: $2,000

Scenario 1: 

-If you were to purchase with a new VA loan at 7% interest at market value your monthly PITI would be approx.: $2,757

-If you were to assume the loan and I carried the second note at the above terms your monthly PITI would be: $2,027

Saving: $8,760 per year.

Scenario 2:

-If you were to bring the same $115,000 as a down payment on a conventional loan you would pay: $1,992

-If you were to assume the loan and bring cash for equity position your monthly PITI would be: $1,300

Saving: $8,304 (with no need to refi in the future)

Since this is a hypothetical situation I'm going to give my number based on nat. average homeownership of 13.2 years. My personal opinion is that this would be a very buyer-dependent situation. If they were staying for 2-4 years probably would not be worth much more to them. however, if this was a home they planned to keep for 10+ years I think there is a huge value here. 

so let's go with 13 year scenario:

total savings would be approx. : $107,952 over the 13 years... I think it would be fair to ask for 1/3 of that savings as an incentive to assume the loan... so approx.: $36,000

Fair?

So could you see paying over the $360,000 Market value and by how much? 

If you would pay over market value how did you get to your number? 

[David Pere]

Quote from @Sean Hudgins:

How much is the ability to assume a loan at 2.25% worth? 

Let's say I have a property that I want to sell and I have a VA loan on it. Let's also say that the property is occupied by a tenant who will be vacating in 30 days and I'm willing to leave it vacant for up to 120 days as needed to complete the assumption process. My goal would be to get the top dollar for the house. Let us also say I am willing to carry the second position note for someone assuming the loan. details below on the property ( I will use a property I own and could theoretically do this with... though not planning to). I would want an eligibility swap. My goal is to see what if any amount over normal market value you would pay to be able to assume the loan / What would you change about the deal?

Location: Chesapeake, VA (large military town)

Market Value: $360,000

Loan Balance: $245,000

Equity/Second position note: $115,000 (30 30-year amortization / 10-year Balloon Payment, 6.5% Interest, $727 monthly payment) - Bringing cash for this would save a ton of money for the buyer.

Rate: 2.25%

Years Left: 26

Current Monthly payment: $1,300 (including taxes/insurance)

Current Rent: $2,000

Scenario 1: 

-If you were to purchase with a new VA loan at 7% interest at market value your monthly PITI would be approx.: $2,757

-If you were to assume the loan and I carried the second note at the above terms your monthly PITI would be: $2,027

Saving: $8,760 per year.

Scenario 2:

-If you were to bring the same $115,000 as a down payment on a conventional loan you would pay: $1,992

-If you were to assume the loan and bring cash for equity position your monthly PITI would be: $1,300

Saving: $8,304 (with no need to refi in the future)

Since this is a hypothetical situation I'm going to give my number based on nat. average homeownership of 13.2 years. My personal opinion is that this would be a very buyer-dependent situation. If they were staying for 2-4 years probably would not be worth much more to them. however, if this was a home they planned to keep for 10+ years I think there is a huge value here. 

so let's go with 13 year scenario:

total savings would be approx. : $107,952 over the 13 years... I think it would be fair to ask for 1/3 of that savings as an incentive to assume the loan... so approx.: $36,000

Fair?

So could you see paying over the $360,000 Market value and by how much? 

If you would pay over market value how did you get to your number? 

While your terms are solid, and afford a great opportunity for people, I would never recommend that a buyer pay over market value, putting themselves under water. We aren't in a sellers market anymore, and I think the reality is that it will help you get closer to market value, as opposed to negotiated against, and racking of days on market (DOM), if that makes sense!