Interesting supplemental valuation by Seller because loan is low interest assumable

[GON]

Looking at real estate, I started looking at assumable mortgages as a way to reduce costs. Assumable mortgages may be FHA/VA, Dept of Agriculture, etc.

Most nice homes that have an assumable mortgage go under contract quickly. I found a Seller in Arizona with an assumable mortgage at 3.75%. The Seller is listing the home at $50 per square foot higher than any other home in the subdivision. The home and subdivision are about five years old. It is very hard to try and value homes with assumable mortgage, in this case it is very easy as the subdivision has numerous like homes on the market.

Interesting valuing a low interest assumable loan can bring to the listing price of a non-custom home in a large subdivision.

 

[cptbarkey]

Have you added up the total interest paid over the rest of the mortgage? $50 per square foot might be duckets vs 7%.

Also, why is an assumable mortgage priced higher? I might be missing the point, but arent you supposed to be only assuming a mortgage?

 

[Zee09]

Have you added up the total interest paid over the rest of the mortgage? $50 per square foot might be duckets vs 7%.

Also, why is an assumable mortgage priced higher? I might be missing the point, but arent you supposed to be only assuming a mortgage?

In that case your assumption might be safe to assume

 

[mk378]

The loan assumption has to be approved by the bank. Why would a bank agree to continue a loan that is not very profitable to them?

 

[Ed_Flecko]

Even if you decided to buy any home with an assumable mortgage, there will very likely be an appraisal as part of the transaction.

I can tell you from experience that the appraiser couldn't care less about the fact that the property has an assumable loan. It does not increase the value of the property at all. It increases the demand for the property (because it increases the potential pool of buyers), yes...but not the actual value. I've sold many properties that had the old VA and FHA "non-qualifying assumable loans". The properties sell (sold) quickly, but the appraiser is not going to tell the borrower the property is worth any more than any other similar property.

Ed

 

[alarmguy]

I would assume (no pun intended) the assumable loan home will have paid down principle.
Meaning you are buying the home for $50 a sq ft higher so is it the buyer has enough money to cover the difference between what is left on the assumable loan plus the extra cost of the home.
So we have the remainder of the home loan and one needs to make up for the balance that was paid down AND the higher cost of the home with what could be a substantial downpayment. It really depends on how long they had that mortgage as far as how much principle was paid down.
If it is a newer mortgage than the gap will be a bit closer (assuming the home didnt appreciate in value, yet this homeowner is asking much higher because of the lower interest rates. With that said, one has to also hope that mortgage insurance isnt on that mortgage because the mortgage insurance transfers to the new home owner in all cases except VA loans.

One thing we can see by your post, is something I repeated for years. High interest rates low home costs, low interest rates high home costs. It's the payment the public can afford when starting off with a new mortgage, not a takeover.

BTW- the above are just my thoughts, I haven't ever been involved with assumable mortgages. I do agree with @Ed_Flecko on his point regarding appraisal, that was actually my first thought then got caught up in these other thoughts *LOL*. He maybe able to correct me if I am wrong on anything here.

 

[GON]

The loan assumption has to be approved by the bank. Why would a bank agree to continue a loan that is not very profitable to them?

There likely are well over a million home loans that are assumable by contract in the US this very minute. Post the state you live in and I will post how many assumable home loans are available in your state right now. And this is only on market assumptions. Off market assumptions happen regularly.

 

[GON]

Have you added up the total interest paid over the rest of the mortgage? $50 per square foot might be duckets vs 7%.

Also, why is an assumable mortgage priced higher? I might be missing the point, but arent you supposed to be only assuming a mortgage?

The home for sale with a assumption is priced $59 USD per square foot higher with the thought that the mortgage rate is fifty percent under current mortgage rates. If you buy a million dollar hone at a 3.5 percent interest, what is the savings in interest over seven percent loan, which is the current average single family hone rate on a million dollar home.

 

[GON]

Even if you decided to buy any home with an assumable mortgage, there will very likely be an appraisal as part of the transaction.

I can tell you from experience that the appraiser couldn't care less about the fact that the property has an assumable loan. It does not increase the value of the property at all. It increases the demand for the property (because it increases the potential pool of buyers), yes...but not the actual value. I've sold many properties that had the old VA and FHA "non-qualifying assumable loans". The properties sell (sold) quickly, but the appraiser is not going to tell the borrower the property is worth any more than any other similar property.

Ed

That is a good point you bring up. An appraisal is rarely if ever needed in a assumable loan. The mortgage servicer and bondholders are already on the hook. What would an appraisal achieve? Nothing at all.

All the servicing lender wants to validate is the assumer of the loan has a debt to income ration to pay on the loan.

 

[Tharber]

There is not enough info here but you might have to get a 2nd mortgage to pay the difference between the assumable note and the sales price.

TH

 

[GON]

I am obviously a poor writer. A assumable loan at half the current rate is a wonderful opportunity. The issue is simply can you find one, and how much over market value are you willing to pay for a home with an assumable mortgage.

This is what I send listing brokers when they have a seller with an assumable loan:

What is the loan interest rate
What is the balance on the loan
How many years left in the loan
How much are the property taxes
What if any is the HOA fees
If there is a HOA, does the sale of the home require additional HOA fees

Listing brokers hate to reply to my request for information. It provides me significant insight when making an offer. I now know what the seller owes on the property, and I don't need an appraisal to close the deal.

 

[GON]

There is not enough info here but you might have to get a 2nd mortgage to pay the difference between the assumable note and the sales price.

TH

Actually, to make it work in today's cash buyer environment, the buyer needs to have the cash to make up the difference between the balance due on the mortgage and the contracted selling price. Of course a desperate Seller might hold a second mortgage for the buyer, but a half price interest rate is likely going to attract buyers that have the cash to make the spread.

 

[Ed_Flecko]

That is a good point you bring up. An appraisal is rarely if ever needed in a assumable loan. The mortgage servicer and bondholders are already on the hook. What would an appraisal achieve? Nothing at all.

All the servicing lender wants to validate is the assumer of the loan has a debt to income ration to pay on the loan.

Thank you.

Another question that often comes up from the seller (who knows they're simply trying to gouge a potential buyer on price) is..."Well, why can't the buyer pay more than appraised value if they like my property that much, yada, yada, yada..."

To which I replied..."Well, yes, the buyer CAN pay more than appraised value if they have some compelling reason to do so...but would YOU pay more than a neutral third party says your house is worth? Keep in i mind that even presupposes the buyer has the financial wherewithal TO pay more than appraised value, if if he wants to."

I've never had a buyer pay more than appraised value. Never.



Ed

 

[GON]

Thank you.

Another question that often comes up from the seller (who knows they're simply trying to gouge a potential buyer on price) is..."Well, why can't the buyer pay more than appraised value if they like my property that much, yada, yada, yada..."

To which I replied..."Well, yes, the buyer CAN pay more than appraised value if they have some compelling reason to do so...but would YOU pay more than a neutral third party says your house is worth? Keep in i mind that even presupposes the buyer has the financial wherewithal TO pay more than appraised value, if if he wants to."

I've never had a buyer pay more than appraised value. Never.



Ed

Ed, thanks for the thorough reply.

Of note, in deep southern Arizona the quality of the homes is very poor across the board. Even in brand new construction. A home with 2 x6 construction, extra insulation, drain tiles, an oversized three car garage, radiant floor heating, tile roof (instead of shingles), a true three car garage as opposed to a tiny three car garage, does not get appraised much different than the exact house next door with 2x4 construction, cheap HVAC system, tiny three car garage, etc.

I would pay above appraised price for a well built home in today's market.

We sold our last home for $150k above what the majority of listing brokers provided as competitive market analysis. That example demonstrates that listing brokers and possibly appraisers may not know how to value property except by zip code, square feet, number of beds and baths, and recent sales.

 

[Ed_Flecko]

Ed, thanks for the thorough reply.

Of note, in deep southern Arizona the quality of the homes is very poor across the board. Even in brand new construction. A home with 2 x6 construction, extra insulation, drain tiles, an oversized three car garage, radiant floor heating, tile roof (instead of shingles), a true three car garage as opposed to a tiny three car garage, does not get appraised much different than the exact house next door with 2x4 construction, cheap HVAC system, tiny three car garage, etc.

I would pay above appraised price for a well built home in today's market.

We sold our last home for $150k above what the majority of listing brokers provided as competitive market analysis. That example demonstrates that listing brokers and possibly appraisers may not know how to value property except by zip code, square feet, number of beds and baths, and recent sales.

$150K ??? WOW...that's stunning to me (as a former Real Estate Broker and College Instructor in the Sacramento region).

For local Brokers and Appraisers to be that far off makes me wonder who taught them how to do property analysis???!!!



Good for you!

Ed

 

[GON]

$150K ??? WOW...that's stunning to me (as a former Real Estate Broker and College Instructor in the Sacramento region).

For local Brokers and Appraisers to be that far off makes me wonder who taught them how to do property analysis???!!!



Good for you!

Ed

To add insult to injury, the house sold to the first couple that toured it. And the house appraised at selling price. It was a hard comp, as it was a waterfront home in a area that didn't have a waterfront home sell for decades. It was a two-acre lot, where all other homes that has sold were 10,000 or less square foot lots.

I worked hard to find a listing broker that knew this home was a challenge to properly price, and the listing broker nailed it.

 

[99Saturn]

This is what I send listing brokers when they have a seller with an assumable loan:

What is the loan interest rate
What is the balance on the loan
How many years left in the loan
How much are the property taxes
What if any is the HOA fees
If there is a HOA, does the sale of the home require additional HOA fees

These questions should give you everything you need to value the benefit from of the assumable mortgage versus the square foot premium no? Other than the unknown of how long you plan to stay in the house/keep the mortgage to the extent that is unknown/unsure/can change.

 

[GON]

These questions should give you everything you need to value the benefit from of the assumable mortgage versus the square foot premium no? Other than the unknown of how long you plan to stay in the house/keep the mortgage to the extent that is unknown/unsure/can change.

99S,

The issue is the lisiting agents tend not to reply to the inquiry on the questions you bolded. They put assumable in the listing, but don't even acknowledge the request for the specific information.

These are primarily Arizona agents; they have been living an extremely well life for the past seven years. I suspect a listing agent in rural Ohio, Minnesota, Indian, Pennsylvania etc would have responded to the RFI.

 

[99Saturn]

99S,

The issue is the lisiting agents tend not to reply to the inquiry on the questions you bolded. They put assumable in the listing, but don't even acknowledge the request for the specific information.

These are primarily Arizona agents; they have been living an extremely well life for the past seven years. I suspect a listing agent in rural Ohio, Minnesota, Indian, Pennsylvania etc would have responded to the RFI.

Ah I see. Was trying to wrap my head around “what’s missing” I was just missing it!

 

[AZjeff]

@GON, According to Redfin the median days on market in February 2024 in Arizona was 57, down 15 days from a year ago. How does this track with your assertion that desirable homes are under contract in days? A whole pile of undesirable properties, or grossly overpriced or something else to skew the median TOM to 57 days? Is Redfin reliable?