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Old 08-31-2008, 10:40 AM
 
Location: Los Angeles, CA
419 posts, read 1,262,025 times
Reputation: 179

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We’re very close to striking a deal on a property. The home needs some TLC inside, but is in an excellent area with great schools with a great floor plan. Financially, the home would break even as a rental and we intend to stay there for at least 10 years.

The homeowner passed away and had no next of kin. The seller on the home is the trustee of the estate and has been trying in vain to sell the home. There are 2 mortgages, both adjustable, both current - though the seller is prepared to let the home go back to the bank after nearly a year on the market with price declines that are approaching short-sale territory.

We spoke with the seller and offered to take over the mortgages - 2 reasons for this, 1) we don’t have cash for a down (but have excellent credit and income); 2) the balance on the mortgages are below recent comps for the neighborhood. We intend to have a full inspection and appraisal on the home before signing on the dotted lines.

We spoke to a reputable appraiser and an honest mortgage broker and verified comps to arrive at value (less the TLC factor) and confirmed we can refi to a single fixed rate loan (provided there is no cash-out).
We are completely inexperienced in this area—and so are most real estate agents. The seller’s agent has never done this before, and navigating through a sea of agents is treacherous at best.

The seller confirmed the first is assumable, but requires a fee. We have not yet contacted the bank on the second. Both notes are with major banks.

I am seeking advice on the following:

- Is it best to let the home hit NOD status before doing this type of transaction? We want to eliminate the transfer fee as it will likely add to the balance on the loan or be an out-of-pocket expense, and the bank was less enthusiastic about an assumption when they saw the note wasn’t in default (crazy...).
- Would you work with an RE broker or attorney to do this type of transaction?
- Would the trustee simply deed us the home and mortgages or record a sale or both? What would the property tax basis on the home be?
- Would you approach the first TD or HELOC bank to refi upon/subsequent to assumption?

Thanks for any additional advice or pitfalls in this area…
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Old 09-01-2008, 07:50 AM
 
Location: Tampa,FL
54 posts, read 238,633 times
Reputation: 18
Two things as suggestions...

1. Just buy the property with FHA while there are still DPAs available and you can get 100% financing. if you wait and lose the DPA, you can still purchase it with only 3% out of pocket.

2. Be careful if you do assume it. Most lenders want at the least 6 months on the title before you can refi it. Others want 12 months, so just be aware that if you assume the mortgage, they may adjust in that time frame and you need to account for that.

Good luck in your endeavors.
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Old 09-01-2008, 08:48 AM
 
Location: Los Angeles, CA
419 posts, read 1,262,025 times
Reputation: 179
Quote:
Originally Posted by davidhomes View Post
Two things as suggestions...

1. Just buy the property with FHA while there are still DPAs available and you can get 100% financing. if you wait and lose the DPA, you can still purchase it with only 3% out of pocket.

2. Be careful if you do assume it. Most lenders want at the least 6 months on the title before you can refi it. Others want 12 months, so just be aware that if you assume the mortgage, they may adjust in that time frame and you need to account for that.

Good luck in your endeavors.
Thanks a ton - on #1, this actually changed in the past week. We have reached out to a number of brokers, and 100% LTV loans are gone. In fact, FHA is the only way to do anything less than 90%, so I'm told.

I'm also hearing there are fees in the form of points assessed to do an FHA loan - these can be paid by the seller, but the lowest quote I received was 1.75%.

#2 is a new bit of data -- thanks a bunch.
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Old 09-01-2008, 08:53 AM
 
Location: Tampa,FL
54 posts, read 238,633 times
Reputation: 18
As of 9/30, the DPA programs are gone. Some lenders are still taking the programs so you just have to find one that does. If you do wait a few weeks to do anything, then you will most definately have to contribute yourself.

There are fees to do an FHA loan. They charge 1.5% up front for the MI that conventional loans do not charge. The other side to this is that their MI is only .5%, which is lower than most conventional programs, it is just a toss up, but you would be better off with the FHA program.
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Old 09-01-2008, 09:47 AM
 
Location: Plano, Texas
1,676 posts, read 6,334,056 times
Reputation: 684
Quote:
Originally Posted by ConsideringLA View Post
Thanks a ton - on #1, this actually changed in the past week. We have reached out to a number of brokers, and 100% LTV loans are gone. In fact, FHA is the only way to do anything less than 90%, so I'm told.

I'm also hearing there are fees in the form of points assessed to do an FHA loan - these can be paid by the seller, but the lowest quote I received was 1.75%.

#2 is a new bit of data -- thanks a bunch.
Depending on where you live and credit scores, 95% conventional loans are still available. If you credit scores are over 680, you can document your income, then go conventional as conventional does not have the same fees as FHA. If your scores are under 680, go FHA even though it will be costly.
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Old 09-01-2008, 10:10 AM
 
Location: Los Angeles, CA
419 posts, read 1,262,025 times
Reputation: 179
Quote:
Originally Posted by VictorBurek View Post
Depending on where you live and credit scores, 95% conventional loans are still available. If you credit scores are over 680, you can document your income, then go conventional as conventional does not have the same fees as FHA. If your scores are under 680, go FHA even though it will be costly.
Our FICO scores are over 775 - the broker stated that the points were because the property is a "junior jumbo" - $650k - which potentially accounts for the additional points on the FHA loan.

The assumption still looks like the most attractive option, though the devil is certainly in the details.

The first TD holder has a formal assumption program as the loan is adjustable. The second is with a different bank - could they potentially block the thing or cause any disruption? I would think they'd be ecstatic to not be losing their shorts on this deal...
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