How risky to pay $40,000 to bring loan current to assume low interest VA loan

[Michael W. McCord]

Hi, I have a nice house in Richardson TX under contract and when I contacted lender to assume the VA loan, I found out that the seller is behind about $40k on the loan and needs to be brought current before the assumption process can begin. It's a great deal for a $477k loan at 2.3% interest and house is in good shape and contracted price is $625k. Seller cannot come up with money to bring loan current and owes $506k. They found a hard money lender but he is charging an insane $150 per day to lend that $40k which would rack up $10-15k interest during the 45-60 day VA assumption process. My question is how risky is it for me to pay the $40k to bring loan current before closing and how can I mitigate risk? Was thinking I could do a title search on property to find any other liens that would be senior to mine. There isn't much equity the seller has in the house so seems risky to put a 2nd lien on the house. Are there any other gotchas or pitfalls I should be aware of? Would really like to score this house but seems fraught with risk.

[Chris Seveney]

Quote from @Michael W. McCord:

Hi, I have a nice house in Richardson TX under contract and when I contacted lender to assume the VA loan, I found out that the seller is behind about $40k on the loan and needs to be brought current before the assumption process can begin. It's a great deal for a $477k loan at 2.3% interest and house is in good shape and contracted price is $625k. Seller cannot come up with money to bring loan current and owes $506k. They found a hard money lender but he is charging an insane $150 per day to lend that $40k which would rack up $10-15k interest during the 45-60 day VA assumption process. My question is how risky is it for me to pay the $40k to bring loan current before closing and how can I mitigate risk? Was thinking I could do a title search on property to find any other liens that would be senior to mine. There isn't much equity the seller has in the house so seems risky to put a 2nd lien on the house. Are there any other gotchas or pitfalls I should be aware of? Would really like to score this house but seems fraught with risk.

If I were to do this, I would do it as a loan in 2nd position so you are protected, just like the hard money lender. That HML if this is owner occupied I would bet is not in compliance with lending laws in the state as there are usually usury laws that would not allow for 100% interest. Especially 2nd lien positions in TX.

Can you also put the money in escrow so it is there and gets credited at closing?