Home Buying in Charlotte>Question Details

amerjan, Real Estate Pro in Charlotte, NC

Assumable Mortgage - Pros and Cons

Asked by amerjan, Charlotte, NC Sat Mar 2, 2013

I need help in evaluating a possible mortgage assumption in Charlotte as an investment opportunity. Assuming that the mortgage is 'assumable'; what are pros and cons? The property is in a great neighborhood but the current loan (which will be assumed) produces almost no cash flow (relatively high balance and high interest rate). On the other hand, it is my understanding that no down payment and closing costs are needed, which is what got my attention to begin with. The property values are increasing and I understand that I might have to refi at some point in the future. Any and all information will be very helpful. Thank you.

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I just listed one with this option as I am desperate. Homes in this area rent quick as it is in a great athletic school district. My problem is I built a new home and have to close in 30 days and don't have the 6 months rental income to qualify as home didn't sell. So I risk losing new build but have a different lender now that can work around this. I am in Charlotte or Mint Hill and you may be interested in property. You can have it at payoff with 25 years left at 4.25% fixed. Call me if you think you are interested.

0 votes Thank Flag Link Sat Nov 30, 2013
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0 votes Thank Flag Link Tue Mar 12, 2013
Why buy something that doesn't cash flow..... are you crazy. Buy smart....don't just buy because you can....
0 votes Thank Flag Link Thu Mar 7, 2013
the cons are as you've already noted that the interest rate is high. Honestly if you cant really afford to put some skin in the game and cover the refi costs, I'd suggest you probably are stretching and shouldn't be considering this property. For the Seller I would never advise this as there are too many concerns about the bank getting things right and leaving them off the hook on the mortgage.

The fact that the property isn't producing a reasonable ROI is another reason to pause on this particular property.
0 votes Thank Flag Link Sat Mar 2, 2013
Goodf afternoon, Amerjan:
You need to research the property and the loan assumption terms. Depending on when the loan was issued, your investment time-frame and the condition of the property, this could be an OK or a bad deal. But it is unlikely that it is a terrific deal. You also should investigate how assuming a loan might affect your ability to get other loans in the future. If you appreciate an answer, please give thumbs up. For the most helpful answer, please say thanks with a best answer click.
0 votes Thank Flag Link Sat Mar 2, 2013
I'm agreeing with the folks below... you still need to qualify the property and yourself. The appraisal, well/septic check if applicable, termite inspection, etc and rent roll needs to be thoroughly evaluated.
0 votes Thank Flag Link Sat Mar 2, 2013
Have you had an appraisal completed on this property? It's likely to be the best $500 you haven't spent yet.

In my opinion, wIth interest rates at record lows it doesn't make sense to me to assume a loan with a higher balance; especially knowing that you will be refinancing (maybe if you qualfy later under the new rules) at the soon to be higher rates.

If the property appraises well, buy it and lock the rate at today's historic low rates for the next 30 yrs. Your future returns will be better. (Unless you are looking for higher losses or tax write-offs)

If the property doesn't appraise for the asking price, I'd look for a different property to invest my money. I don't understand why you would want to over pay for a piece of real estate? Of course, I am a loan officer working for a Mortgage Bank, so my perspective is different.

I hope this helps.
0 votes Thank Flag Link Sat Mar 2, 2013
I thhink it is best to separate the sales price in the transaction from the financing. Buy the property at the best price you can and do your own finacing. I guarantee if you do the assumable out of necessity you are paying more than you would have otherwise.
0 votes Thank Flag Link Sat Mar 2, 2013
The first thing you need to understand about an ass unable loan is that you will still need to qualify for that mortgage. No lender will allow an assumption otherwise. So, if you can qualify for that loan, you may be better off getting your own loan at a lower interest rate. Investor loans do have higher rates than owner occupied loans and generally have a 20% down payment. You will need to look at your total cash layout to see if the savings in interest rate & a lower payment will produce the cash flow you are looking for and over what period of time will you break even. With the Liam assumption, there WILL be closing costs. As with any closing, you will still have some fees related to the assumption, closing attorney's fees and, depending on when you close, you may have pro rata property taxes to pay. As with any investment purchase, it is all about your bottom line and the time value of money!

You also need to look into the whether or not you think you could assume then refinance into a lower rate. You mentioned that the loan to value is high. Do not take on more debt than the house is worth in the current market! That would be a horrible business decision. Property investments are only good when the rate of return on said investment is higher than what you could make investing your money in another investment vehicle.

Best success!
Kathleen Turner. ABR, CRS, ePro,Certified Paralegal
The Kathleen Turner Realty Group
Keller Williams Realty
0 votes Thank Flag Link Sat Mar 2, 2013
Oops - bad typing! I meant "assumabable". Sorry everyone!
Flag Sat Mar 2, 2013
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