Loan Assumption II

Awesome. So from our last video, we were talking about making offers and assuming VA loans. We now have the next stage of what's going on. Cedric's with us and thanks, Cody, for joining us too. We're going to look at the next stage of our process of assuming a VA loan. Some of the trials and tribulations, some of those things that, you know, the everyday agent may not know. And also the consumer is experiencing some of these things along the way where, you know, they don't know the answers and they don't know what to expect. They don't know the rules. They can't, you know, push back on, on some of the decisions. But Cody, you've been working with Cedric now for a couple of weeks. Came across a property we were talking in our last video with Cedric about placing it. Make an offer. The offer was made. The offer was accepted, Is that right?

That's correct, Tristan. Yeah. Thanks for having me, by the way.

You're welcome. So congratulations, Cedric. You got an offer accepted to assume.

Yeah.

Yes, I did. Very excited.

So what's the next stage from here? Obviously we got an addendum or some sort of documentation in the contract that says we're planning on buying the house, assuming the loan. That's a little bit different from most contracts, but it's a standard field. I believe in the contract there might be a separate addendum to provide more info, give us a little bit of clarity on that coding.

Yeah. So kind of covering the, like writing an offer to, you know, actually closing on it. Assumptions are totally different than new financing. So like how we write the contract and like how we did it for Cedric's. Lenders don't really pay attention to any timelines in a contract, unlike new financing.

Right.

So in terms of closing, typically it's 60 to 90 days or as much as 120, depending on who you get for a servicer.

Yeah.

So what's really important, like what me and Cedric did is we have a variable closing date. So it states in our contract, you know, if we don't close by X date, contract automatically extends to X date. And it does that two more times out to 90 days.

Right.

Reason being that we do that too is, you know, I was running into the issue of every time we needed an extension. Even though the sellers up front were educated on what this process looks like, they're trying to renegotiate, which I don't like for my clients. So it's kind of.

Is there a way that we put in there that we will close within 30 days of the completion of the assumption. Is that a reasonable thing to place? Because it leaves it very generic. It does give a date based on an event happening. And obviously if, if you really can't assume then you're not in contract. You're not bound to complete the con contract because the, the seller's lender hasn't complied or hasn't been able to underwrite. Is that something you can do to that way not have to put out 390 day or three 30 day extension points just to say within 30 days of completion of probate I'll buy the house. And that's generally do in those situations. Do you think that could apply here?

At least what I've been told, it's much easier to enforce like a date. Like if it does not close by X, it automatically extends to x date vs like leaving it open. It's just, it's very open to interpretation. Got it.

So fantastic. So you've got the, you got the offer accepted by the seller's agent. Now what have you collected from Cedric in general? What is the first stage of your collection? I mentioned yesterday we'd probably want a mortgage statement from the seller. Just so we got the full details of the mortgage, the principal balance, the interest rate, the account number. So we can put that on the assumption form. I'm guessing we know who the loan servicer is. Tell us about what's collected now and what's going to be leading forward the next two, three, five, eight weeks through the process. You providing more information to the lender?

Yeah, so actually, I mean I do it a little bit different than probably most agents. So I pull together, you know, estimated cash to close, estimated remaining loan balance, estimated interest rate. This one we know the interest rate and we do know the loan balance, but we make the offer typically based on estimated information. And then from there we're filling out the loan assumption addendum and everything after. And it's written in, you know, section eight that I'm filling that out and not the seller's agent because there's some important details on there. Yeah, so it's a little bit of a different process. So like on Cedric's we know what the terms are, but I don't have the mortgage statement in hand yet because I'm waiting on it from the listing agent. But we should have that later today.

Got it. Okay. So, so once you have that, you can complete the addendum that goes to the seller to, to countersign as well, comes back to Cedric, then that gives. Is that what gives you the third party authorization to talk to the, to the lender at that point? Or is that just from you filling out the form that they count as tell me about what happens then.

Yeah, there actually is a separate third party authorization form now like for Cedric, he already got pre qualified upfront with a third party assumption company. So they handled that piece for him and the sellers. So that's not paperwork like me as an agent, I personally touch nor do you really want me messing with because that's not my area of expertise.

Got it. So what can Cedric expect from this point onwards? Get the mortgage statement, get those couple of forms filled out. What is typical in the process and the processing now from now TILL Whether it's 90, 180 days, hopefully it's not anywhere near 90. But between now and get into that closing table because really the process is Cedric's applying for a 3.5% loan. Effectively he's got to qualify with his income ratio for a 3.5% loan instead of a 7% loan. So it's a lot easier for him to qualify for that interest rate and that payment. Obviously it's pretty standard on what you would apply for a brand new loan, but you're just qualifying for a lower payment effectively with, on an existing mortgage, correct?

Yeah. In terms of kind of what you can expect, it does vary per lender. But yeah, that 60 to 90 days you're going to be working, you know, with the, the loan servicer that holds that mortgage and then like in Cedric's case, working with a third party assumption company, you know, they kind of underwrite his file ahead of time, request all the documents that they're going to need and put together that whole assumption package for the LO servicer.

So that sounds very worthwhile. And how many people are using that assumption type of company to do this? Very few, I'm guessing.

No, you'd be surprised. Like at one given time they're typically carrying anywhere from 60 to 80 files. Yeah, 14 of them are mine for clients.

Is that an Arizona based company or is that nationwide?

Arizona based, but they do. Nationwide.

Got it.

So a lot of South Carolina, a lot of Texas obviously because we're based here. A lot of Arizona.

Yeah, yeah.

Is that new or is he becoming more popular now or has they been doing a Samsung for the last five, 10 years?

So you know, mortgage rates have been on a downward trajectory, you know, since the 80s for the most part. So there really has not been a place in the market for assumptions. It's only now that you Know, we had rates in the 2 to 3 to 4% range and we're now at 7, 8%. That an assumption becomes attractive. You know, like when rates were, were low. You know, what would be the point of doing an assumption? You might as well just, you know, get the exact loan terms you want because rates are low. So.

And there were incentives at those points with buy downs because of the state of the market. People are attracting you with the, the lending company buying down rates for you instead of you having to buy some of those rates down, I guess. So that was also made it more attractive to get an extra eighth or a quarter of a point off the rate just from working with your lender directly, I'm guessing.

Yeah.

So. So traditional processes generally in place outside of the assumption. So you're going to have a due diligence period. How long is that in this situation? Do you get longer because it's a, an assumption, or is it again, 10, 20 days? How are you.

No, it's typically 10 days is what we're doing on everything.

Send your inspector in and get, you know, a report done. And will you donate back at that point? Depending on what you find, what's up? Will you give any bins or, and, you know, request for repairs and negotiate at all at that point?

Yeah, I mean, we always try. I mean, the way the contract's written, the worst thing they can say is no, and then you still have the right to move forward with it.

Yeah.

And then I think where a lot of the opportunity comes with an assumption is it's kind of a new thing. So who knows if you have an agent on the other side that knows the value of it? Because I'll tell you, like, if we're looking at a house that's sub 20% down with, you know, a 2 to 3% interest rate, you're gonna have flexibility on inspection, or at least you should. But some people don't know the value of it. So it doesn't mean you can't. Can't negotiate. See what you can try and get off. Yeah.

So, yeah, I think it's an amazing opportunity. Certainly, you know, you're scaring the market for listings that are certain loan types. How is this something you're educating other agents on or is this something that just doesn't make sense to do that and you're just looking for that niche to benefit from the rates that are available?

Yeah, so previously I was not educating agents on it. I think I probably had kind of a scarcity mindset towards it. If I'M being honest, but I mean, I personally, I hit a point probably about three weeks ago where I stopped prospecting, like how I met Cedric on Facebook and stuff like that. I stopped doing that because I just. I had enough clients personally that I didn't need to. And now, you know, with my business partners, we're starting a small boutique brokerage around it, specializing in loan assumptions.

So. Fantastic. So are you looking to go and find target properties and then sell to investors that have a partner that could, you know, qualify for those loans and hold them as investment, or are you specifically looking at the retail market?

So, both. You know, I work with a lot of investors, you know, just strictly because, like, if I'm talking to you, Tristan, or you, Cedric, I don't need to sit here and explain why a 2 to 3% interest rate is a huge benefit, especially in today's market. So obviously investors are attracted to that. But, you know, we also, you know, I just closed one today for some primary home buyers, so we do that, too. It's really just for anybody that's in the position to take advantage of it that sees the value in an assumption.

Fantastic. Fantastic.

Which, if you ask me, I think anybody that gets educated on it, you know, has interest in assumptions, typically.

Yeah, absolutely. No doubt. Cedric, what else are you aware of and what questions did you have the last day or two with. With Cody.

Was my. What I had been away and what other question I had really was being of, okay, how do I do more? How do I buy more? How. Once we close on these, how can an investor can go ahead and buy more, buy more property? Because there are some loans that do not allow for investment. So those were the question I had. And, colleague, you want to elaborate a little bit on that as we speak about it little bit today? How can an investor go on and buy more property like this as an investment property?

Yeah, that's a great question, Cedric. So how. The tough thing about doing VA assumptions is we can't use any of the rental income to offset mortgage payments or debts until it's two years filed on the tax returns. So, like, if you're buying a house today, it would have to be on your taxes filed two years to be able to use the rental income to cancel out that payment. So typically, everybody has a cap. Let's say it's 45, 50% DTI on VA, you know, whatever you can carry for, you know, debt repayment on a monthly basis. That's going to dictate how many properties you can buy. So, like, when we're pre qualifying somebody we're not pre qualifying like on the price of house, we're pre qualling on what can someone handle monthly payment wise. So like if someone qualifies for, let's say $5,000 a month, they could probably buy two to three houses.

So what types of loans are generally sum of. What are you seeing out there? I think there could be, as long as it's in the loan document that it's assumable. But va? I think almost all VA loans are assumable since a certain date. How many FHA loans and conventionals are generally assumable? Is that quite a common thing?

Yeah. So all VA and all fha, even if the servicer tries to say it's not assumable, that's false. Every VA and every FHA is assumable conventional. It's at the discretion of the servicer and it's very rare because why would they want to, you know, let somebody take over a 2 to 3% mortgage if they have the option not to?

Right, yeah, understood. So that makes a lot of sense. But really a government backed loan is a safer assumption. Opportunity for the loan servicer, is that where we're looking here?

And it's guaranteed as well. So you know, if you find something with the va, there's no question of, you know, is it assumable? It is, yeah.

Absolutely. Well, fantastic. So what, what should we be looking at finding out in our next call? We'll probably do another call in maybe a couple of weeks or three or four weeks when we have some more information. And like you said, Cody, I think we should probably do a call where we talk about how do we find these properties, what are we doing to locate this type of opportunity and you know, how do we, how do we talk to the agents, how do we talk to the sellers if we're direct to seller and see if we can just assume that. I think for investors even talking directly to a seller, if they're talking direct to a seller, they won't do a stub too. But hey, how about we assume the loan because you know, certain people are saying, oh, we don't want to assume debt, but it sounds like that's a pretty good idea right now. If we can find a partner who qualified for the debt taken over two and a half, 3% without the threat of due on sale and a number of other concerns that are coming up from subject to and other creative finance things, it seems like a win.

I'll tell you, you guys make my job really tough Because I often get confused with sub 2 and creative finance. Yeah. And it's talking them back. It's like, hey, no, this is something different. And you know, there is a place in the market for sub two, just like there's a place in the market for loan assumptions. But yeah, they typically, they don't go hand in hand. You know, that seller.

Really talking to the seller and saying, look, sub two is for a distressed seller. You're clearly not a distressed seller. And I think it's. It's a great opportunity for your. Sell your house at a higher price.

Yep.

Not have to give concessions for closing costs because the interest rate is already down. So there's your win as the seller. And now you get to take more with you to your next. To your next property and. Hey.

Yeah, exactly.

Well, guess what, if I can find you a loan to assume on your next property, how about I find you a 3 1/2, 4% interest rate deal to move into and we can get that one assumed. Would that be a better future for you? Because then we're offering that same benefit to the seller as well as the buyer. That's assuming the rate, presumably.

Yeah. Yep. I'm doing one right like that right now. Primary home seller. We're actually selling on an assumption. And then it'll be buying on an assumption.

Fantastic. Fantastic. Well, brilliant, guys, thank you for filling us in on this. I think it's been amazing to, you know, watch this journey and see how it evolves and we'll. We'll learn more in the next few weeks and we'll keep documenting it all the way through. So, Cedric, thank you so much. Cody, appreciate your expertise. We'll continue the conversation soon.

All right. Sounds excellent. You guys have a good evening.

Thank you. Thank you for having us. Amazing.

Yeah, thank you, Tristan.

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