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Taking over an underwater loan

As an Australian I have been unable to secure US finance at rate below 9% or Aussie finance at 8.5%.  I would like to assume a loan (VA or FHA) to get a property with established finance at a reasonable interest rate.

I would consider an underwater loan with an LVR of 105-115% as long as the rate and terms were reasonable and the property was located in a good investment area.  This would allow the vendor to release from the underwater loan with the credit score unaffected, the bank would retain the business (possibly at an interest rate above current market) and not have to take the property to short sale.

While I am oversees I have a great credit rating in Australia and could provide a credit rating backed by a world recognised credit reporting company.

I know that assuming loans can only be done with the permission of the lender on some loans such as ARM, VA and FHA, and that this is no longer a common transaction but in the case of an underwater loan I believe it could be a win for all parties.

Could anyone help me with this type of purchase?  Thanks 

  • September 19 2012 - US
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Answers (7)

Well, you are in luck because this is my specialty. It is technically owner financing you are just not creating a new note you are just taking over the existing one. You can call it an assignment. Yous are not assuming the loan. Your name will not be on the loan. The sellers name stays on the loan until you are able to refinance or sell the home but in your case I would ask for many years being that you may not be able to refinance soon. I always get my buyers with ITINS 7-10 years on the refinancing term because we do not know when they will be able to refinance. I like to protect them. Also, You do not need title insurance but it is good to get. I always do even though the seller may have just bought the home.  Upside down homes are not a bad deal as long as you ask for a long refinancing term and the payment is affordable. If you have further questions you can call me. 
  • September 19 2012
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Hi Esmeralda,

 Would this work for FHA assumable loans? I stumbled across a site listing homes with underwater FHA assumable mortgages. Many of them are only a little underwater and the local rental market is good so the low interest would make them a good investment. However, FHA is not investor-friendly.

 Could I buy these with a seller-contract and then manage them as rentals for a few years before refinancing?

- Chad
  • September 29 2012
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Profile picture for wetdawgs
In order to assume an FHA or VA loan, you would have to be approved by the lender and meet the qualifications for FHA loans.   (This is not a decision the seller makes.)    There are restrictions on assumptions of FHA loans when the buyer is not planning to occupy the property as their primary residence.

  • September 29 2012
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To Chad, Yes, you can buy the house from the seller with owner financing even if the home is under water so to speak. However, you would not be assuming the loan because in order to assume the loan you would have to qualify for the balance and as an investor you could not but you can talk to the seller and offer to buy the home subject to his existing lien also called owner financing. All negotiations are between you and seller and you guys set the terms and the length, down payment, interest rate etc..  I talk to my sellers about owner financing only when no other option exists and they are either upside down or are behind.  
  • October 01 2012
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Y'all might want to research the terminology of the "due on sale" clause that is omnipresent in US mortgage loans.
  • October 01 2012
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The atty I use Discloses the Due on Sale Clause to all seller and buyers in the transaction when the contract is written and in many pages during closing. Seek out a real estate atty savvy in these types of transactions. 
  • October 01 2012
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I wonder how the mere act of disclosing the Due on Sale Clause "to all seller and buyers in the transaction when the contract is written and in many pages during closing" matters? The entity it needs to be disclosed to is the lien-holder.
  • October 01 2012
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