My Experience With An Assumable Loan

I did it. I closed my first assumable loan. But man was it a doozy. This transaction took 6 months! Let’s get into some of the nitty-gritty details of this transaction.

In Mid to late August 2022 we were looking for properties with assumable VA loans. Rates at the time were sitting somewhere in the 7% range, and a VA loan issued in the last few years would likely have been under 3%. So we compared listed properties against mortgage/land records and found several listed properties that had been purchased with VA loans.

But here is where things get a little complicated. The property really needs to have been purchased in the last couple of years for this to work. If the property had been purchased say 5 or 10 years ago, the delta between the purchase price and mortgage balance would have been too great to make it worth putting down a downpayment so large.  The property we located had been purchased a mere 14 months earlier. All the others just had too much equity in them to make it work.

Here comes another nuance though. The property listed would also need to be overpriced, and the buyer would need to be willing to pay over-market value for the property.  If the property were in fact appropriately priced, it would sell quickly and prevent someone trying to assume the loan from purchasing it….as that is a long arduous property.

So this property was listed at $860,000 and had a fair market value of $810,000. So it was priced $50,000 over the most recent comparable sale just 2 doors down that had closed just a couple weeks before. This allowed the property to sit and stagnate on the market. Over the course of a month, and multiple offers and terms we finally got the seller to agree to sell the property for $825,000. So the buyer willingly overpaid by $15,000. He probably would have gone higher too, as the difference in interest rate would save him almost $2,000 a month. 

Yes you read that right. $2,000 a month savings from getting this mortgage which had an interest rate of 2.75% versus the 7% market rate at the time.

The loan balance was roughly $750,000. Closing costs on this would be about $10,000. So my buyer needed roughly $85,000 to close this transaction. So this is not a strategy for someone with little capital. Individuals using VA loans often are using 0% down. In this case, the buyer had to have roughly 10% down.

So after a month of negotiations we got the property under contract in mid September 2022.  At first we thought we were going to be smooth sailing. The loan officer at the bank said it should be done in 45-60 days. That should have placed the closing date at the latest by December 22nd. We closed February 13th 2023. Way way way further in the future.

Banks do not make any money on loan assumptions. The loan assumption fee was limited to something like $300. So there is no economic incentive for a loan officer to spend anytime on these files. This was a very large national bank. At the start of the process they had 10 underwriters in their loan assumption department. While we were under contract they reassigned 5 of those underwriters to regular loans, leaving just 5 underwriters to work on all their loan assumptions….nation wide.

Keeping the seller engaged for months on end was very difficult. But we were able to do it.  But even on the day of closing, an hour before closing the lender asked for 5 additional items to send back through underwriting. We pushed back closing a few hours. Literally, at the table we were still making changes and providing documents to the lender.

We worked with Titan Title on this transaction. They were great. They found multiple mistakes the lender made and were able to get them corrected which saved my buyer $3k at the table. (Disclosure: Russell has a financial interest in Titan Title)

There were so many other twists and turns, and screw ups by the lender in this transaction. It was a long and hard process. But that 2.75% interest rate was worth all the headaches. 

Interested in identifying properties with assumable loans to buy? Then hit me up. Russell@RussellBrazil.com . 301-893-4635 . instagram.com/RussellTBrazil