I ran into a MFP for sale on the MLS. 78 units total. The list price is $4,900,000. But there is an assumable loan of $2,740,000 at 3.96%. I'm not sure how much longer the term is.
This may sound crazy; If I bought the place would I be paying the total $4.9M or just the $2.74M? If I have to pay the whole amount then why offer the assumable loan?
Hey @DJ Porter I believe you couple possibly assume the 2.74M loan, which just means to put it in your name and you'd have the debt, but you would still need to come up with the difference - (4.9-2.74 = $2.16M) So if you had $2.16 million, this would be a nice easy deal to put together.
If the assumable loan is a "2nd Mortgage" then perhaps you could get a loan for the 1st $2.16M loan, and the second with this assumable one. Not sure if it works that way but it makes sense in my head.
It's common too for sellers to carry back equity, but you'll still need a down payment on almost all deals unless the seller is really motivated and can't unload it, like health issues.
Understand too that assumable commercial loans doesn't mean a lender will allow any cart pusher off the street to assume that loan, (not calling the OP a "cart pusher") they will need to qualify. You'll also find that the fees on small loans (not this one) may be close to obtaining a new loan. What you can save on can be soft costs, engineering reports, appraisals, title and mortgage insurance, bonding requirements and other related loan fees. :)
If it's a long term loan at such as great rate then it could be good to have it. Usually though these loans have shorter terms left and give you interest rate shock down the road having to find another loan.
If you are a weaker borrower you can bring in a credit partner with more liquidity and assets to appease the lender on assumption of the loan. Also if you are weaker they may still let you assume the loan but not release recourse against the current borrower (seller). In that case the seller is still on the hook if things go bad. If the seller will not hold a second at all it is telling sometimes that they want out of the property and are hiding something.
The asking equity down is 46%. That is really hefty. Most buyers can get much better financing than that with LTV. The loan may not even have to be assumed and the seller is just presenting it as an option OR in some cases it has to be assumed because of a very large pre-payment penalty attached to it.
The lender for the seller will have assumption guidelines and approval criteria to get to see if you would come close to getting approved by yourself. You want to verify you have a good chance of loan approval and the income numbers and expenses of the property are correct before spending all this money on other items (site inspections, legal, etc.)
The key for a seller or listing broker would be getting the buyer vetted for loan assumption before going into all of these other details that take up a bunch of time and energy. If the buyer had little to no money and is trying to get creative the seller can wait for a more well qualified borrower.
I really appreciate all of the comments. Very helpful, thanks.
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