So I saw a 4-unit property during my quad-plex search. I got all excited when I saw one has an assumable loan. But I don't know what the right questions are to ask. I sent an email to the given realtor on the property and here is what they wrote back:
"The loans on this property are assumable with a current rate of 2.875 each and with a 1% assumption fee for a qualified buyer. The loans are variable but they have been at this rate for several years.
All units are two bedroom one bathroom with enclosed private backyards & washer and dryer hook-ups.
Loan details:- monthly payment = $577.15/month, next rate reset is on 3/22/15. Max rate reset is 2% per year which caps at 12%. Remaining loan balance is $108K for each loan, or $216,000 total, and they have approx. 21 years left. The loan rates are tied to the weekly average of the one year treasury securities index.
All of the units are currently occupied but you could always evict (without cause) one of the tenants when you purchase it."
I don't know what the reset of 2% means. Is this an ARM? Are there closing costs associated with a loan assumption? Given these numbers, does this look like it's worth looking further into?
I know I ask a lot of questions. And thank you for your time.
With the feds tapering off the buying of bonds rates will rise. Might be smarter to put new debt on it if possible.
Agree with @Joel Owens
Plus, since this is a quad, you would qualify for the 3.5% FHA program, if you could occupy it within 60-days of purchase.
You didn't indicate what the units currently rent at. However, if you used the 3.5% down and secured an interest rate of 4%, you would only have to rent the 3 remaining units for $500/mo to be essentially cash flow neutral, which means you're living free. That would include reserves of $300/mo.
I'm ashamed of this but have to be honest @Hattie Dizmond
and @Joel Owens . I didn't realize the list price was $460k. That totally changes the game. Thanks for the response. And Hattie, I'm taking your advice on FHA as we speak and converting my current FHA mortgage to a conventional ;-). Ready to house hack very soon!
Awesome, Kyle! I'll be on your way in no time at all.
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