Experience with assumable mortgage

Discussion in 'After Hours Lounge (Off Topic)' started by Drew Bethel, Jan 5, 2004.

  1. Drew Bethel

    Drew Bethel Screenwriter

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    Wondering if anyone knows about this type of transaction or has done it. We are thinking of buying my mother-in-laws home for a rental property. We want to go this route since she refied last year at 5% for 15 years. Any info is appreciated.
     
  2. Eric_L

    Eric_L Screenwriter

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    There is usually a credit qualifying and a modest fee to assume. Make sure of the loan terms - that there is no adjustable rate, balloons or other surprizes.

    Assumeables were very big in the 70s when interest rates were skyrocketing.

    For you the only real advantage may be saving a few grand on closing costs. 5%X15 is nice, but not heartstopping.

    You also need to consider the difference between the purchase price and the real value. If there is substantial equity you must either compensate her or accept it as a gift.

    If you compensate her you will need either a second mortgage (usually at higher rates than firsts) or alot of spare cash.

    If you accept it as a gift there is a real possibility of gift-taxes being due.

    One creative method I've heeard for gifting is for ma to carry back a second for the equity and just forgive an amout of principal every year equal to the gift-tax exclusion.


    Finally, you may want to carefully consider what is involved in getting into the landlord business. Being a landlord is not always a hay-ride. Horror stories abound. Think roommates - you just don't live with them.
     
  3. Drew Bethel

    Drew Bethel Screenwriter

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    Eric, you bring up some good points. We do plan on giving her the difference in cash but I agree that 5% for 15 is average.

    We have until spring so there is much more research to be done. We would like for both parties to benefit as much as possible instead of third parties like banks and realtors, etc. Thanks for your post.
     

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