Posted by Bill(WI) on December 02, 2003 at 15:30:21:
I have a 2 family property where I can assume the loan with a balance of $57,000. Comps are about $79,000. The problem is that the seller also has a $8,000 home equity line of credit on the home that she said she will continue to pay. The first mortgage that I would be assuming is 7.75% interest adjustable. I would want to refinance as soon as I could after I assumed it. But…
I wont be able to refi or sell or anthing if she has this line of credit on the house. She cant pay it off right away and it does not make the deal a deal for me if I pay if off. What can I do to make this deal work?
Posted by DaveD (WI) on December 03, 2003 at 09:17:46:
IF your goal is to sell quickly, it doesn’t make sense to assume. You’ll need to qualify, same as if you are getting fresh financing. BTW, $65K is 83% of FMV, not worth putting new financing on. You will only be able to do a couple of these before your bank cuts you off from financing because your credit ratios will get all screwed up. Save you credit for a meaningful deal where there is huge equity to steal.
If you want to hold, why not just take over the payments without assuming. “I’m sorry maam, but my policy is against assuming loans. I will take over your payments, though.” Try to get the heloc to attach to something other than the house (does she have other RE?) If no, draw up a good contract to accept accelerated payments from her to knock down the heloc as soon as possible. You face the risk she may not pay, leaving you stuck with the heloc. Is the deal otherwise worthwile for you to take? That is really the only question you need to answer.
Posted by Charles on December 02, 2003 at 20:43:38:
First thing you need to do is determine what you are trying to accomplish. I’m assuming you want to keep the property as a rental. How much income are the rents producing? Would you be in a positive cash flow position if you had to pay both notes? The reality of the situation is, you’re going to have to pay off the 2nd note if you refinance, so you have to decide is it still a good deal at $65,000? ($57,000 + $8,000)
To get started, I’d suggest you do an AITD. You assume the 1st and the 2nd. If the woman has agreed to continue paying the 2nd, that’s fine. Have her just keep on making the payments as she has been. You really only have to juggle the two payments for a minimum of 6 months (less in some cases) before you can refinance. If the numbers still work, it’s a go. If the house will appraise at $79,000 and you can buy it for $65,000, you’re still getting a discount of a little under 20 percent. If you decide you’d rather sell, you’ll probably net around $12,000 after costs. Not a home run, but a solid double, I’d say.
Posted by Bill (WI) on December 03, 2003 at 09:36:53:
Thanks for the reply Dave. I appreciate it.
My goal is to sell somewhat quickly. Well I thought assuming would cost much less than a new loan. No normal fees or no down payment. No it does not work at $65k, only the $57k.
Well I thought about that however she has been working with the bank on the assumption. I think they may see a red flag if she drops the idea and payments start flowing again. Maybe not. I dont know. I am going to find out if she can attatch the LOC to something else. If so great, if not I am stuck back at square one. Can I trust her to pay it off. Plus I would need it payed off fast if I want to sell quickly. With comps around 80,000 getting this for 57,000 makes it seem worthwhile. At least to me that is. Bill
Posted by Bill (WI) on December 03, 2003 at 08:45:43:
Well I could hold as a rental with about $180 postive cash flow IF I only had the 1st mortgage to pay. Paying both notes would be probably rule out a rental for some time. I really just want to hold for a short time and sell. I need to find out if the seller would be willing to pay this 2nd off ASAP, like 1 year or less. I dont know how I could enforce this though.
I dont think I can assume the second, only the first. So your saying have her pay the second until I refi and then pay it off out of my pocket. It still makes financial sense however it seems to pointless to pay the 8k if she is willing. Maybe I could have her give me note for 8k after I refi. Still I dont know how to ensure she would pay it. Any other comments or ideas are welcome. This would be my first deal so I am nervous and excited at the same time. Thanks alot, Bill
Posted by Bill(WI) on December 02, 2003 at 20:32:43:
If I buy for $50,000 I would have to come up with all cash I think. I would then need a down payment and other costs that I would not have when assuming the current loan. I think thats the advantage of assuming is avoiding all the garbage fees. I could be wrong though. Thanks.
Posted by Bill(WI) on December 02, 2003 at 17:07:01:
I dont think subject2 will work because she tried hard to get the bank to let someone else assume. They will likely think its strange that she is keeping it now.
What if I want to refinance? I wont be able to until she pays this thing off. Plus she can still charge to it I think???
I dont have money to lend her. Thats why assuming looks so good. Little money up front. What do you think the chances are that I could assume for a higher amount than the $57,000 first mortgage therfore paying off the equity line. Then I could carry a note from her for the $8,000. I have no idea if that could work or not. Thanks, Bill
Posted by SteveG_Pa on December 02, 2003 at 16:27:10:
Yeah, if the equity line is an older loan, maybe they will take a small discount or more for a full payoff, then have her paying you the same amount shed have paid anyway, so you buy the note from the bank basicly. You get the difference in principle, and the Interest, hmmm.