Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
Hello,
My daughter is buying her first home and is looking at a couple of different 'first time home buyer options' that are available with her qualifications.
Essentially what is comes down to is that going the 'conventional' route would be .125% (1/8 percent) lower interest @ 3.75% than our state's first time buyers plan , WHEDA, at 3.875%. Both fixed for 30 years, no prepayment etc...
BUT, the higher interest WHEDA is an 'assumable' loan down the road if they wish to sell. How much is that 'assume-ability' worth if they chose to move before the 30 years is up?
I have not paid a lot of attention to the idea of selling with an assumable loan as they do not seem as common as they used to be, or as desireable in a dropping interest rate environment either. Rates are bound to go up some over the next 10+ years I would think.
I am looking for feedback as to say a scenario of them wanting to sell in 10 years, and say going interest rates are 8% instead of the current 4% and the house might be worth say 150K (they are buying at 92K on a house currently appraised @ 140K).
From some rough figuring, a buyer in that situation would say about $140 in monthly payment and 30K in interest on the remaining balance of the loan. Seems like it would be worth a fair amount, no?. The difference in the two loan options would cost them under $2000 over the life of the loan or about $5 a month.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
The worth will far exceed the 1/8% premium she will be paying, IMO. What a cool program! As far as an absolute value, that will depend on the prevailing rates at the time she sells. Duh, right? Could be 10% as long as it appraises. It's worth may be more in the ability to sell when others are struggling to sell. Who knows what bank lending criteria will be for everyone else at that time.
I buy on seller financing a lot and always ask for or draft in assumability. Keeps my exit options open. With that one little clause, I foresee being able to sell faster for more money when the time comes. My rate is 6% and I'm glad to get it. Haven't had to qual for a bank loan or suffer through an appraisal, origination fee, PMI, or lender's title insurance in years!
I would do the assumable loan for sure @Daniel Dietz!
Agree completely with the above assumptions. What I was wondering specifically is if there is a 'formula' or 'rule' of what the actual worth of that might be, in order to put a dollar value on it.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
The worth will far exceed the 1/8% premium she will be paying, IMO. What a cool program! As far as an absolute value, that will depend on the prevailing rates at the time she sells. Duh, right? Could be 10% as long as it appraises. It's worth may be more in the ability to sell when others are struggling to sell. Who knows what bank lending criteria will be for everyone else at that time.
I buy on seller financing a lot and always ask for or draft in assumability. Keeps my exit options open. With that one little clause, I foresee being able to sell faster for more money when the time comes. My rate is 6% and I'm glad to get it. Haven't had to qual for a bank loan or suffer through an appraisal, origination fee, PMI, or lender's title insurance in years!
I would do the assumable loan for sure @Daniel Dietz!
Agree completely with the above assumptions. What I was wondering specifically is if there is a 'formula' or 'rule' of what the actual worth of that might be, in order to put a dollar value on it.
Thanks, Dan Dietz
Honestly I wouldn't pay more interest rate wise for it. While it might make sense interest rate wise, the buyer is going to have to bring all the equity difference to the table. You would assume whatever the seller has paid on it. So if the house has appreciated 200k than the buyer would have to pay that cash, to the seller, because he assumes at the current interest rate.
I have 8 houses and they are in first time and personal property area. Still I plan on just selling it traditionally. While assumption is a bonus, I have a feeling that people won't want to pay the full price (ie the difference in the loan). If they were equal I would go assumption all the way, I just personally wouldn't pay extra.