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The issue is that there will be two mortgages on the property.
One will be primary and the second will be subordinate to the first.
Not many mortgage lenders want to be the second mortgage holder unless the borrower has substantial equity in the property. They have much more risk than the primary mortgage holder.
Do FHA mortgages allow for a second mortgage on the property?
Thanks everyone, I will pass this info to my husband, rough numbers we borrowed approx 380k for the home at..I even forget?4% back in 2018, then we refinanced to the 2.75 approx 2-3 years ago?It's an FHA loan if that matters at all.The home has appreciated to 590-620k depending what you look at, so the borrower would have to have a second loan or have a sizable downpayment. I was just wondering if this is a perk for a homebuyer because our agent tells me that most agents don't understand assumable mortgages and they would in the end have to borrow too much money(unless the huge downpayment) BUT homes in our neighborhood same approx size have sold recently for around 620k. SO, our home would save those people a ton of money, correct?I just see this being a huge help to someone but so far no takers on assuming.
I don't know why someone would sell a home to people they don't know and still accept the responsibility if the new owners default?That would be a huge red flag for me to sell so I hope that's not the case.
Thank you all so much for weighing in!
Having an agent who doesn't understand how loan assumptions work certainly doesn't help any. But the problem is even worse than that. I would surmise that the overwhelming majority of real estate agents today don't understand much about how they work either.
If the agent who is showing your home to prospective buyers doesn't understand much about the various loans and how to structure financing to benefit both parties, then you're not getting the knowledge and expertise that you're paying for and the sale of your house may suffer for that. Unfortunately, that's nothing new. It's been that way for a LONG time.
Yes, your existing home loan could save a buyer a LOT of money and it could help YOU to pocket a lot more money from the sale of your home if only the agents were more knowledgeable about the financing aspects and able to explain it to their clients and customers. Just an FYI, I'm NOT a real estate agent, but have managed to learn quite a bit about real estate buying and selling and financing over the past 45 to 50 years.
The issue is that there will be two mortgages on the property.
One will be primary and the second will be subordinate to the first.
Not many mortgage lenders want to be the second mortgage holder unless the borrower has substantial equity in the property. They have much more risk than the primary mortgage holder.
Do FHA mortgages allow for a second mortgage on the property?
Banks and other mortgage lenders generally have little to no interest in being a holder of a second mortgage. That's why I suggested that the SELLER hold the second mortgage.
I don't think that FHA or any holder of a first mortgage can stop a person from obtaining a second or even a third mortgage on a house. Actually, it's usually to the benefit of a first mortgage holder if there is a second mortgage on the property because this means that there is a second party that has a financial stake in seeing that the first mortgage is paid and that the house is well taken care of.
Sometimes, when there is a second mortgage on the property and the property owner gets into a financial bind, the second mortgage holder will step in and purchase the property subject to the first mortgage. So, in effect, the second mortgage holder can act as protection for the first mortgage holder.
Banks and other mortgage lenders generally have little to no interest in being a holder of a second mortgage. That's why I suggested that the SELLER hold the second mortgage.
I don't think that FHA or any holder of a first mortgage can stop a person from obtaining a second or even a third mortgage on a house. Actually, it's usually to the benefit of a first mortgage holder if there is a second mortgage on the property because this means that there is a second party that has a financial stake in seeing that the first mortgage is paid and that the house is well taken care of.
Sometimes, when there is a second mortgage on the property and the property owner gets into a financial bind, the second mortgage holder will step in and purchase the property subject to the first mortgage. So, in effect, the second mortgage holder can act as protection for the first mortgage holder.
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I guess I'm not understanding why if I was going to sell the house,would I get a second mortgage?..If we sell we'd like to just be done and not worry about what the new owners are going to do once they purchase.
I guess I'm not understanding why if I was going to sell the house,would I get a second mortgage?..If we sell we'd like to just be done and not worry about what the new owners are going to do once they purchase.
Well, clearly, you DON'T understand. The suggestion regarding a second mortgage was for you to CARRY the second mortgage, not OWE or make PAYMENTS. In other words, you're the BANK. The buyer pays YOU a portion of the selling price over a period of months or years. Additionally, the buyer PAYS YOU INTEREST on the unpaid balance of the second mortgage.
So, it's kind of like (perhaps better) you sold the house and put a portion of your proceeds into the bank drawing interest except you would be getting a higher rate of interest than any bank is likely to pay you at the present time.
Further, you would be protected against the buyer's failing to make payments as called for because you would hold a mortgage on THEIR house. If they default on paying you the mortgage payments, you could FORCLOSE on them subject to the first mortgage on the property.
As for WHY you might do this, I can think of several good reasons:
1. It would likely make the sale of your house both quicker and easier.
2. It would greatly increase the number of potential buyers of your property because the buyer wouldn't have to have as large of a down payment.
3. The buyer would save money by buying YOUR house (as compared to buying a different house of the same price) because they would be assuming YOUR CURRENT low interest rate loan.
4. You would likely be able to get a higher price when selling the house (for the reasons listed above).
5. You would get a much higher interest rate paid to you (carrying the second mortgage) from the people who buy your house than you could get if you had the money in cash and put it in the bank.
As far as the original owner still being on the hook for the mortgage when it is assumed……..back in the good old days (1970s-80s) one could assume a VA or FHA with no qualifying, and yes, the original buyer was still responsible. But some time in the late 80s or early 90s the rules changed, the loans were still assumable, but the new buyer had to qualify. It was my understanding that after that, the original owner was released from the loan. But I may be wrong. Anybody know?
Soooo...
Based on the provided numbers, it appears reasonable to assume that the OP is sitting on a mortgage balance in the $340,000--$350,000 range.
Sale price of $600,000+ would indicate the buyer will make up a $250,000+ purchase price difference, not allowing for closing costs, assumption costs, etc. A second mortgage/HELOC/opportunity costs will nibble at the savings provided by the 2.75% interest rate.
It may be reasonable to conclude that the successful buyer will max out at 90% LTV with both loans if taking a second loan, so at least $60,000 out of pocket.
I would suggest the OP might focus on the broad market of buyers, perhaps mention FHA assumability, but not rule out a typical real estate transaction.
Sell the property features like any other desirable house, without making loan assumption the primary reason to buy.
And... Be absolutely certain that they are released from responsibility for the assumed loan balance, with documentation and recording.
Soooo...
Based on the provided numbers, it appears reasonable to assume that the OP is sitting on a mortgage balance in the $340,000--$350,000 range.
Sale price of $600,000+ would indicate the buyer will make up a $250,000+ purchase price difference, not allowing for closing costs, assumption costs, etc. A second mortgage/HELOC/opportunity costs will nibble at the savings provided by the 2.75% interest rate.
It may be reasonable to conclude that the successful buyer will max out at 90% LTV with both loans if taking a second loan, so at least $60,000 out of pocket.
I would suggest the OP might focus on the broad market of buyers, perhaps mention FHA assumability, but not rule out a typical real estate transaction.
Sell the property features like any other desirable house, without making loan assumption the primary reason to buy.
And... Be absolutely certain that they are released from responsibility for the assumed loan balance, with documentation and recording.
Yes, we've been marketing just like a normal home and mentioning the assumable mortgage as an option, but from what I'm reading here, it sounds like a lot of uncertainty and liability plus a pain to deal with so..probably not a perk like we thought it was.Crossing fingers someone comes along with a traditional loan (or good old cash)at this point, we just want to sell and be done with the house and responsibility.
Thanks everyone!
I had to scroll back before I said, "of course you can get a second loan, unless you are in Texas." Texas has the most restrictive rules for lenders regarding home equity loans (second liens). Finding a lender to provide up to what "typical" buyers borrow (over 80%) could prove difficult. In fact, just to keep it simple, my organization will not do any refinancing or 2nd lien financing in Texas.
An assumable loan is definitely a commodity to market, but only if you can fit the pieces of the puzzle. First, the new buyer can qualify and release you from liability. But you could also "take back" and finance the 2nd lien yourselves, giving you income (currently 8% - 9%). You could offer quite the deal with a 30 year amortized 2nd, ballooning in 5 - 10 years, giving your buyer a chance to refinance. Definitely run this by a RE attorney, you may not have the same restrictions institutional lenders have on 2nd liens in Texas.
Yes, we've been marketing just like a normal home and mentioning the assumable mortgage as an option, but from what I'm reading here, it sounds like a lot of uncertainty and liability plus a pain to deal with so..probably not a perk like we thought it was.Crossing fingers someone comes along with a traditional loan (or good old cash)at this point, we just want to sell and be done with the house and responsibility.
Thanks everyone!
Then what are you and your spouse going to do for housing once your house sells? Are you and he splitting up, going to move in with someone else, going to start renting, or what? In order for a person to structure a creative deal that is satisfactory and workable for both parties, it's necessary to know what each party's real financial and housing situation is.
If you, as the seller, say "I want ALL my equity in CASH money at the closing and nothing else is acceptable", then you are greatly restricting yourself in how many buyers may be able to qualify for buying your house. Further, you're almost certainly going to get considerably less money for the sale of your house if ALL CASH to you at closing is the only thing you'll settle for. The real estate market has changed. It's not at all like it was just a few years ago when interest rates were dirt cheap.
So, in order for a knowledgeable and intelligent agent to get you the most money for your property and to have the largest group of potential buyers as possible to facilitate a quick sale, it's important for that agent to know your REAL reasons for selling and what your housing plans are after you move out of the house. The greater your flexibility, the better the odds for you getting a quick sale and at a price that is attractive to you.
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The suggestion regarding a second mortgage was for you to CARRY the second mortgage, not OWE or make PAYMENTS. In other words, you're the BANK. The buyer pays YOU a portion of the selling price over a period of months or years. Additionally, the buyer PAYS YOU INTEREST on the unpaid balance of the second mortgage.
