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HUD: VA Assumable Loans are Viable – For Listings and Buyers!
HUD: VA Assumable Loans are Viable – For Listings and Buyers!
What’s in it for the Buyer? —-The Seller?
The Agent? And the Bank?
Note: As with any post that relies on “government techno-speak,” it will be a little “clunky. ” This one is no exception. So, please bear with me as we skip around
Regarding loan assumptions, the lending community (intentionally?) spreads a lot of “disinformation” to both agents and the general public.
I believe it is simply because there is no (immediate) profit for the typical MLO in facilitating a loan assumption. And it’s being done at a time when the agent community is “under fire” because of these ambulance-chasing lawsuits, which is sowing confusion among the public.
But there are long-term benefits.
Agents have a 3% commission check hanging in the balance.
Many lenders’ business models have de-emphasized the “MLO-Agent business dynamic,” replacing it with an internet strategy of “clicks and likes.” That is clearly shortsighted.
And they are a marketing opportunity for both listings and potential buyers.
All FHA, VA, and USDA loans are fully assumable, and any buyer can assume a loan. On the other hand, Conventional loans (Fannie – Freddie) are never (truly) assumable.
Sellers of homes with assumable loans can get top dollar for their homes and possibly move to a replacement home with a below-market assumable loan.
Why Aren’t Assumable Loans More
of a Topic of Conversation in the Agent Community?
1) Assumables are a “niche” in the marketplace.
2) They are tedious and intricate, but if a buyer prepares their paperwork before their search, the process can be completed within 30–35 days.
3) Until recently, loan services had not been forced (by HUD) to ramp up their assumption departments, as rates were so low that that assumptions were irrelevant. That has changed!
4) There is no short-term profit for facilitating an assumption. I’ve accessed 17 top-ranked YouTube “Assumable FHA Videos,” most by MLOs; all had verifiable errors, and only three were “pro-assumable.” Coincidence?
Currently, 1492 SoCal homes are listed for sale in the MLS, with assumable loans. I have access to the master list (updated weekly). However, thousands of other homes are presently secured by FHA and VA loans in every zip code, and all are potential clients.
The assumption processes of
FHA and VA loans are significantly different.
Non-VA Buyers can assume VA loans, but only with stipulations; I will have a post shortly.
In the meantime, contact me for a phone consultation regarding the specifics of VA assumptions (“Vets Helping Vets”) until I post with VA specifics.
“Listers Last”
Commission Alert
Condo projects that have lost their FHA, VA, or Fannie/Freddie certs (usually due to low HOA reserves or insurance issues) are prime targets as sellers are stuck with the home unless a new buyer uses “non-warrantable” financing, which is a non-starter for virtually all buyers.
Potential buyers should be aware that the HOA will likely level a future “special assessment” to bring the condo project up to typical “lendable” standards.
Moving Forward………..
Eight months ago, I interviewed the principals of an Orange County-based assumption service, confirmed their business methodologies, verified their “successes” (closing the assumptions in less than 45 days), and concluded the process of buying a home with an assumable loan is “viable.” and getting more viable as HUD has begun enforcing the assumption clause contained in all FHA loan documents.
Thanks to the efforts of HUD’s Secretary Marcia Fudge, there is now a proven track record of enforcement, so I’m comfortable bringing the assumption process to my readership.
In addition, a trusted colleague of 18 years (Paul Scheper – see below) acts as an interface between buyers and the assumption service.
Paul played football at Harvard and has an MBA from USC, so he has “street cred” with me. Check out his web channel, www.AssumeTube.TV, for educational tidbits on assumable loans.
There are assumptions that companies are “out there” selling “DIY” videos on YouTube and other outlets, claiming the process is simple.”Yea; well, It’s NOT!” After all, how crazy were “Loan Mods and Short Sales” During the Great Recession?
Processing an assumption takes skill, prep, a game plan, and building relationships within the loan servicer’s staffing.
Each loan servicer has its own internal challenges (i.e., high employee turnover), so the process is tedious even for professional assumption processors.
In early 2023, it was clear that “large FHA servicers” were initially dragging their feet; that is, HUD’s compliance team got involved, and issues began to be resolved.
It took time to get the first assumptions approved.
It’s not that the bank won’t allow the assumption (they do), but the problem was often the lack of staffing, expertise, and direction for departments that barely existed two years ago.
During the 2007-2012 Great Recession, HUD took a financial beating on FHA loans that defaulted. To prevent a repeat of future (short sale – loan mod) fiascos, HUD’s leadership team put policies in place forcing “servicers” to honor the assumability of FHA and VA loans.
HUD can sanction loan servicers (monetary assessments) or, in extreme cases, bar servicers from managing FHA loan payments. (aka the “Death Penalty”).
Here are the specifics of an assumable loan:
* The seller is off the hook because the buyer must (minimally) qualify.
* Must be owner-occupied (no investors, no second homes).
* In addition to the $2450 assumption processing fee, the current lender typically charges about $1400 for internal and recording fees.
* If the assumption isn’t approved, the fee is not due and only paid at COE.
* No new title policy or appraisal is required (unless a piggyback 2nd mortgage is required).
* Buyers often get a loan rate of 2.5% – 4.5% vs. a current rate of 7.5%-8%.
* The loan term remains the same and doesn’t revert to the full 30 years.
* Buyer must have a min. 640 (mid) Fico score,
* Verified income – * Primary and secondary debt ratios are expanded
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