This is a reprint of a recent question asked on Zillow that I answered.....
A lady asks:
Is It Possible to get assumable loan?
Have someone willing to purchase a home for me until I can qualify for my own loan after my short sale, but I would like to take advantage of today's great rates. Is it possible for this person to get an assumable loan that I can assume in a couple of years when I am able to qualify? If so, will my down payment money go to the home owner, or the mortgage company/bank?
- Mark Antonowsky, "Scottsdale Homes"
- Contributions:2
Hello Fellow Phoenician!
Yes, FHA loans are assumable with qualifying. Read this Washington Post Article as it more or less answers your question. While FHA is most Conventional loans are not.
However, I'm guessing your friend doesn't want to live in the property with you, hence, it won't be owner occupied which would rule out FHA. FHA is only for Owner Occupants and not investors.
So, there are creative ways, like a lease purchase if your investor friend doesn't need you to assume the loan to do the deal.
I work with an attorney that puts together "Lease Options" that legally wrap non assumable first deeds of trusts. Your payments are tax deductible, they do not violate due on sale or acceleration clauses, and in many ways they are better than traditional financing.
You also asked about what would happen to the down payment in your scenario. I imagine you were thinking your investor would buy a home and allow you to assume the loan when you could qualify. In this scenario the buyer's down payment would be predicated upon the lenders guidelines and your down payment would be predicated upon your repurchase agreement, as these are basically two separate transactions. It would be safe to say you would be putting down no less than what your investor had to come out of pocket to make the initial purchase. Does this make sense?
A Zillow Reader Asked a Followup Question to my Post:
"I work with an attorney that puts together "Lease Options" that legally wrap non assumable first deeds of trusts...and in many ways they are better than traditional financing."
Why do you feel that a wrap is better than traditional financing?
Why do you feel that a wrap is better than traditional financing?
My Answer:
Advantages to the Buyer is:
1) Decisions are usually not made verifying income, a particular credit score, basically the normal underwriting rigger required to originate a new home loan.
2) Can ask for a dollar for dollar reduction in principle balance owed verses the principle reduction of a normal amortization schedule.
3) If values drop, and you find yourself underwater, providing the Seller still has equity, there is a better chance of a terms / loan modification than if you had a regular bank loan.So, you will probably have the option here to also walk away from the property without recourse because your just walking away from anoption to buy not a deed of trust or a mortgage. So, advantage buyer.
1) Decisions are usually not made verifying income, a particular credit score, basically the normal underwriting rigger required to originate a new home loan.
2) Can ask for a dollar for dollar reduction in principle balance owed verses the principle reduction of a normal amortization schedule.
3) If values drop, and you find yourself underwater, providing the Seller still has equity, there is a better chance of a terms / loan modification than if you had a regular bank loan.So, you will probably have the option here to also walk away from the property without recourse because your just walking away from anoption to buy not a deed of trust or a mortgage. So, advantage buyer.
Advantages to the Seller:
1) In real estate the saying goes, "you get either price or terms; rarely both." Lease option is considered a "Term Sale", so not only would the seller benefit from the interest rate spread between the underlying loan and the interest rate on the "Option" but it allows the seller the chance to get a higher price. Most term deals don't involve an appraisal, so that concern usually doesn't come into play as well.
2) In the event of a default, and statistics say they will, the Seller gets the property back to sell again. Given interest rates will most likely rise at some point in the future, a wrap on a loan created during this time of very low interest rates suggests a nicer return for the owner if resold in the future.
These are just a couple of advantages for both that came to mind. I hope this answers your question.
Mark Antonowsky has been both a real estate agent and a mortgage loan consultant for over 25 years. If you have any questions about your current home loan, equity position, need to sell or buy a home, thinking of building a custom home, give Mark a call today.
