Maximizing Wealth: The Dynamic Duo of Assuming Existing Loans and House Hacking

[Brian Bohrer]

Hello to all my fellow House Hackers and Biggerpockets enthusiasts! I want to share with you a strategy that not only unlocks the benefits of assuming existing loans but also pairs seamlessly with another powerful wealth-building tactic - House Hacking. As an experienced realtor who has assumed a loan myself, I'm thrilled to share with you the exciting terrain where these strategies intersect and share how they can supercharge your real estate investment journey.

Unveiling the Power of House Hacking

Assumed Loan + House Hacking: A Dynamic Duo

Imagine stepping into a property with a lower interest rate and an existing mortgage, ready for assumption. Think this isn't possible? well it is! All VA, FHA and USDA loans are assumable and even a few Conventional loan products out there are assumable as well. This is not a Subject-to transaction, and you will have to be capable of qualifying for the loan, just as if you were taking out a new loan. Now, pair this strategy with the concept of house hacking, where you live in the property and rent out rooms to cover your mortgage expenses. This dynamic duo creates a powerhouse of wealth generation!

Accelerated Wealth Building: Room by Room

House hacking allows you to tap into a unique source of income by renting out portions of your home. With an assumed loan providing a lower interest rate and accelerated amortization, the income generated from house hacking can be leveraged to pay down the mortgage principal even faster, or the extra cash could be saved to be used towards your next down payment! The power of that interest rate is a game changer in today's market condition.

Financial Flexibility: House Hacking's Cash Flow Cushion

Assuming an existing loan often leads to a lower monthly payment. When you add the income from house hacking into the mix, you not only cover your mortgage but also create a surplus that can be reinvested or used to bolster your financial stability. This financial flexibility is a game-changer, especially for those navigating the unpredictable terrain of real estate. In most cases, when you assume a mortgage say for example with a 3% interest rate you can save tens of thousands of dollars per year in monthly mortgage payments alone when compared to loan written with todays rates! This is not even considering the increased debt (principal) paydown you will be taking advantage of as well. In most cases, you will be paying off your debt twice as fast!

Primary Residence Financing: A Strategic Move

First Home as an Investment: Buying Smart

As many of us have heard directly from David Greene and others on the Biggerpockets podcast, the strategy of buying a primary residence every year with a low 3.5%-5% down payment and then renting the previous home when you buy the next, is a strategy that all new and experienced investors should be taking advantage of! The advantages are twofold - you secure favorable financing terms for your primary residence, and when you're ready to move on to the next property, you have the option to turn your initial purchase into a lucrative investment. With rents falling in many areas, and with the cost to buy going up in relation to higher interest rates, this strategy is becoming harder and harder to implement. Many are finding that when they attempt to rent the home the following year they may have to cover a portion of the previous home's mortgage as the rent won't quite cover the full payment. With the power of assuming a loan, we have a tremendously better chance to cover this payment in the future, and maybe even take home some actual cashflow! What a concept!

Renting Out, Moving Up: A Progressive Portfolio Approach

Assuming an existing loan on your first property and renting it out when you move on to your next home amplifies your wealth-building potential. The lower interest rate inherited from the assumed loan and the rental income from your initial property can be instrumental in financing your next real estate move. It's a progressive portfolio approach that can align with your evolving goals. Even if you do have to shell out a little cash to cover the previous home's mortgage, you still have the powerful advantage of the increased principal paydown working in your favor! Let time be your friend. Rents will increase over time, and when you sell that home in 10 - 20 years (most likely for a substantial profit) you won't remember any of those short rent payments you may of had to cover in the first couple of years!

In Closing

As you navigate the intricate world of real estate investment, consider the symbiotic relationship between assuming existing loans and house hacking. The combination of lower interest rates, accelerated amortization, and the income potential from renting out spaces within your property can set the stage for remarkable wealth generation.

And for those taking the plunge into first time homeownership or those implementing the buy-one-house-per-year strategy with primary residence financing, remember that strategic moves today can lay the foundation for a robust and dynamic real estate portfolio tomorrow.

Here's to unlocking the full potential of your real estate ventures - may they be as rewarding as the strategies you employ!  Happy investing!

[Steven Nani]

Hi Brian,

Great article. Question for you, how do you go about finding homes with an assumable mortgage? This seems to be a needle in a haystack situation given the current markets demand. Love the strategy though. I'm currently house-hacking for the first time and will be trying for round two come 2025. 

Best - Steven

[Brian Bohrer]

Hey @Steven Nani,

There are several ways to find these loans. In my local MLS, it may not be true in your area, there is a field that a listing agent can fill out to designate the home they are selling has a FHA, VA or USDA loan which by default would make it assumable.

You can also reach out to your favorite local title company and ask if they can provide you with a search tool like TitlePro247 or provide you with a list of current on the market homes with a FHA, VA or USDA loan in place. This would be a great place to start!

I hope this helps and please reach out if you have any other questions! 

Take Care,

[David Cunha]

One question I have. Is there a limit on assuming FHA loans? Can you assume another while currently having one?

[Brian Bohrer]

Hey @David Cunha,

I do not think that there is a limit.  Although I do know that after you have 6 - 10 Conventional primary residence loans that you may begin to be scrutinized a little more thoroughly by underwriting.   Honestly, though I feel most banks and lenders want to have performing notes and if you look good on paper, then they probably won't give you much kick back if you qualify.

I hope this helps and thank you for reading!  Good luck :)

[Michael Bridgett]

Hey @David Cunha , did were you able to find an answer to this? I'm in the same situation (currently have an FHA, but looking to assuming another).

Thanks!

[Brian Bohrer]

Quote from @Michael Bridgett:

Hey @David Cunha , did were you able to find an answer to this? I'm in the same situation (currently have an FHA, but looking to assuming another).

Thanks!

 Hey Michael,

I did some research on this subject and found that you should be able to assume another FHA loan even though you already have one in place. You would want to be sure you are at least one year removed from the origination of that first FHA loan as that could be a hiccup as well. The general thought is that the loan was originated with all FHA stipulations met at that time of creation. Therefore, by you assuming this loan you are not creating a new loan. You would only have to prove your ability to pay the existing loan and would not be qualifying for a new loan with all of those FHA requirements.

I would recommend speaking with a lender in your area, or better yet, reach out to the servicer of the FHA loan you are intending to assume and verify your ability. In my case, I assumed a VA loan as a non-veteran. I asked the servicer if I would be able to assume another in the future and I was told this would not be an issue as long as I qualified financially!

Good luck in your quest and I wish you the best!

Take Care,

[Michael Bridgett]

That's awesome, Congrats @Brian Bohrer!