Hi there,

I have a question on how to best handle a home purchase.

My in-laws have a rental property that is in Northeast San Antonio that they are getting ready to sell.
They bought it about 4 years ago and they owe roughly 150k on it at 3%.

We would be buying it from them for roughly 250k.

Is there a way to assume the 150k at 3% and then get a second mortgage for approx. 50k at today's interest rate?

We would pay the difference in cash to them.

Is this something that's difficult?
We have purchased 3 homes before, but all have been primary residences, and I did a VA loan on the last two.

Exactly this. The note would need to be assumable. Typically these would be VA, FHA, USD, etc, but some credit unions and local banks who keep their loans on their books might allow it as well. They'd need to read their note or ask the right person at their servicer to find out for sure. We've done several assumable loan sales in the last year and I can tell you most lenders have never done an assumable loan transaction so you'll need to be knowledgeable about the process to get it past the finish line.

The above posts are correct. It cannot be conventional which the large majority of loans are. If another type of loan as mentioned you still must qualify using their underwriting terms.

If all that works your family could give you a direct loan at negotiated terms. Say 6% at 15 year? Just guessing on terms but something like that.

I'd say there is about 80% chance it's conventional so a new loan 6.75-6.875 in current market.

My post should have read "USDA" but I think it auto corrected.

Didn't even notice. But I'm mortgage so I knew what you meant

Unfortunately, I'm pretty sure its conventional too.

It is a bit harder to make the numbers work on rent at that interest rate.
I think the mortgage would be almost equal to the market rent.
I guess this one of those things where you probably just eat a small loss for a few years and then it should improve later on.

Well I tell all my clients in this market there is about a 90% chance they will refinance in the next couple of years. I believe that.

But I can't predict the future

It has already been answered but the loan has to be assumable which is most likely is not. but, even if it was an assumable loan you would need to get a second mortgage on a non-owner occupied property was is NOT widely available as there is little to no secondary market for them. We do them out of our balance sheet but they are expensive which would make your blended rate not THAT much lower the current market rates,

what do you think the market value of the house to be today? is it 250k, or something higher?

Why don't you just tell them to give you the mortgage company log in credentials, and you'll pay the mortgage from here out? Assuming these are family members that trust you and you have a good relationship with.

Keep the % low.

Do they need the equity?

I didn't read (or reply) as having a loan with a family member.

I said just get the mortgage log in credentials and take over paying the monthly payment. Assume the 'responsibility' of paying the mortgage, and take the rental payments.

This is assuming the family member doesn't need the equity from a sale, which he didn't explicitly say and if it was assumable, that would be the assumption anyway.

Do they leave the ownership iof the house in the family member's name?

62strat said:

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I didn't read (or reply) as having a loan with a family member.

I said just get the mortgage log in credentials and take over paying the monthly payment. Assume the 'responsibility' of paying the mortgage, and take the rental payments.

This is assuming the family member doesn't need the equity from a sale, which he didn't explicitly say and if it was assumable, that would be the assumption anyway.

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What Steve and Jay are saying aside, that's an awfully big ask of a family member, IMO. Definitely not an ask I'd make....

Asking them to just defer $100k; $50k if the OP did pay them so a 50% discount, and trust they'll keep making payments as the loan is in their name. And with a loan in their name, impacting any debt to income ratios if they are looking at other properties/assets. Then you have the legal/contractual question of it being allowed in the loan as well as the legal/contractual questions of who's responsible if any issues with the renters arises.

jja79 said:

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Do they leave the ownership iof the house in the family member's name?

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That can be figured out in the future. Maybe they do will it to them upon their death.. who knows.

The short term goal (presumably) is for inlaws to not deal with making mortgage payments/renters, and for op to have a low rate while being a landlord/collecting rent that turns a profit.

My suggestion satisfies that. Maybe in 5 years rates are down again, and they can do a sell/buy then.

No way in heck I would do your deal 62. I'd put in on the market, get rid of my 150 thousand dollar debt, and pocket my 100k. Then say…thank you very much!

SteveBott said:

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No way in heck I would do your deal 62. I'd put in on the market, get rid of my 150 thousand dollar debt, and pocket my 100k. Then say…thank you very much!

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which is why I'm curious of the situation. Why sell a house that is making a profit with rent?
keep it, pay it off in probably under 10 years, and have a nice stream of income.

My only guess is they need the equity, but in that case, if the OP could assume the loan like he's asking, that wouldn't satisfy their need.

And everyone has a different relationship with their parents. I could easily have seen my dad do something like this for me if the situation came up.

If he transfers ownership his 3% rate is going away. Every investor holding 3% loans on investment property is looking for every opportunity to get out of that.

If he doesn't transfer ownership and the family member passes away what's to stop other family members from making a claim?

62strat said:

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SteveBott said:

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No way in heck I would do your deal 62. I'd put in on the market, get rid of my 150 thousand dollar debt, and pocket my 100k. Then say…thank you very much!

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which is why I'm curious of the situation. Why sell a house that is making a profit with rent?
keep it, pay it off in probably under 10 years, and have a nice stream of income.

My only guess is they need the equity, but in that case, if the OP could assume the loan like he's asking, that wouldn't satisfy their need.

And everyone has a different relationship with their parents. I could easily have seen my dad do something like this for me if the situation came up.

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I had encouraged them to keep it at first for those reasons.
The short version to the first part is that they're now divorcing after ~40 years (very strange and very suprising story if you knew them IRL)

That aside, I don't think that they're in dire need of the equity, but I think they're just trying to sell assets, and both have a fresh start. I Imagine they will sell their martial home as well before this is all said and done.

The idea with assuming the loan was to take over the loan at the ~3% then give them 50k via a second mortgage and give them another 50k cash.

jja79 said:

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If he transfers ownership his 3% rate is going away. Every investor holding 3% loans on investment property is looking for every opportunity to get out of that.

If he doesn't transfer ownership and the family member passes away what's to stop other family members from making a claim?

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This part is something I would worry about. All of the family members are pretty solid and we have great relationships with all but it's hard to say what relationships look like in 20, 30. etc. years. Plus one of the brothers could marry someone more conniving etc.

It would be one of those things that if I'm buying something then I'm buying it.
I do appreciate the suggestion though!

Thank you for the information! I didn't realize the blended rate wouldn't be that advantageous, were it even possible.

The market value of the home is probably 275 or so.
If I'm being honest, for 275 under normal circumstances, I wouldn't buy in that area.

I see homes in NW and North Central SA with good bones that just need updating fairly frequently and so will probably look at something more in that direction.