Loan Assumption??

Question

Anyone know about current loan assumptions if they even allow them anymore.  This would be for a VA Loan obtained in 2007.  What are the closing costs associated with assuming a mortgage.  I am guessing the original title ins and policy would stay with it and most costs would be associated with transferring the property and legal paperwork.

The remaining principle balance on the property is about market value.  However if it can be assumed than there would be no 20% down payment required and closing cost savings.  It is currently rented out through a property manager making a small but positive cash flow. This could be a good return on little cash invested.

Just trying to get creative.  thoughts?

Tyler Mills · Answer

This is the case with most easily assumable loans such as VA, FHA, and USDA loans.  They are owner-occupied only, except the case of the 4-unit FHA which requires you to occupy 1 of the units.

Recia Davis · Answer

@Mike Landry, another option I didn't see discussed above is taking over the loan "subject to". This would allow you to avoid the down payment but the current loan structure would have to work for you. Just another tool for your tool box.

Recia

Mike Landry · Answer

i called the loan assumption department. According to them an investor can not assume a loan, only owner occupant. The numbers didn't work anyways. Thanks for the education though.

Joseph Zanazan · Answer

VA loans become advantageous  during periods when borrowers are concerned about future rate increase. If the loan was closed before  		March 1, 1988, it becomes eligible for assumption by anyone. The assumers of these  mortgages  		don’t have to meet any requirements at all, but the seller  remains  		responsible for the mortgage if the buyer doesn’t pay. Anything that was funded after March 1, 1988, VA loan   assumption is not allowed unless you obtain prior approval from a GNMA endorsed lender. The advantage in these situations is that the veteran is released from liability to the   VA and doesn't have to worry about the sale of the home coming back to   haunt them at a later date if the purchaser defaults on the mortgage.

The fee to assume a VA loan is usually in the range of .5%. I usually guesstimate a padded threshhold and although it usually doesnt get up to %1 on assumptions , its more in the range of a half percent. Think of this funding fee as the premium VA needs to insure your mortgage.

Is the assumptuin of a VA loan always going to present you with the most merit when it comes to the cost effective financing? ABSOLUTELY NOT!

I think a smart person is one who understands the numbers and understands their goals. Not always will assuming a VA loan be the one and only option for you. Remember that in order to process and underwrite a VA loan, banks as an institution and their employed underwriters need to be directly endorsed specifically by the VA. Also, the rumors you have heard about the process being a bit more lengthy than traditional conventional financing is true. Lets just say you want to work with a lender who has strong underwriters and has an existing pipeline that's VA heavy. Experience is key. Lets run some numbers when you're ready and see if its for you or not.

Mike Landry · Answer

very low closing costs.

Mike Landry · Answer

interesting. Thanks. We actually found out the loan is assumable for .5% fee.  However, the monthly payment is too high to have worth while cash flow, but the equity build is significant. Now to find out if I pay down the loan significantly, will they recast the loan? That would be the only way I could do the deal. I'm going to call then. Thanks for the info.

Elizabeth Colegrove · Answer

If you assume the loan you have to pay another funding fee? Other than a lower interest rate because you assume the interest rate. Why would you want to assume a va loan ?

Joseph Zanazan · Answer

VA loans as mentioned above are assumable. If i were you I would immediately formulate a strategy with respect to your figures of affordability. All Veterans using the VA Home Loan Guaranty benefit must pay a funding fee. Remember, the VA Funding Fee is a one-time fee paid directly to the Department of Veterans Affairs (VA) for every VA purchase or refinance loan. Throughout the life of the loan, the funding fee is gradually absorbed and if the same loan is kept long enough, eventually is completely rendered to zero. During consecutive VA refinances on the same loan, the same funding fee carries over to the next loan. This fee experiences a credit on the previous loan and a debit on the new one. In essence, it keeps updating itself in escrow on every transaction until you keep the loan long enough. Although the loan amount is effected by this fee since it is added to the financed amount, your actual figures for the sake of calculation are not going to consider the funding fee as a part of the total borrowed amount. Same concept goes for the FHA upfront premium.

The overlays and guidelines on these loans are pretty straightforward and don't really change much from bank to bank. There are some costs, however they are usually minuscule and a small price to pay for the merit that assuming a VA loan presents. VA allows $255 for processing, $45 for a closing fee, and the VA itself receives a funding fee of approximately 1% of the loan balance. This reduces the loan's cost to taxpayers considering that a VA loan requires no down payment and has no monthly mortgage insurance. The funding fee is a percentage of the loan amount which varies based on the type of loan and your military category, if you are a first-time or a regular VA loan user, and whether you make a down payment.

Dion DePaoli · Answer

VA loans are indeed eligible for assumption.  Subject to approval.  Costs would include a fee paid to underwrite the new borrower, appraise the property and transfer title.  Since the security instrument is not changed, there is no new large fee for title insurance but the lender may request an endorsement to the policy and perhaps more of a gap insurance fee, similar to getting a reduced rate for a refinance.  Just because the loan is eligible for assumption does not mean they will grant it nor does it mean they will not request a pay down (you called it down payment) on the current loan amount.  A pay down of the principal would not be surprising since the property sounds like it is for investment purposes right now and the lender would be wise to you not having a lot of capital invested, therefore increasing the idea of default risk.  The only way to see how they would respond is ask.