by Ron LeGrand
Using this technique, you will find loans that can be assumed, such as non-qualifying FHA and VA loans and private loans. The beauty of this is that non-qualifying loans require little money, no credit checks, and you need very little training to do them.
A non-qualifying loan is any loan that does not contain a “due-on-sale” clause, which gives the lender the right to call the loan due when the property transfers ownership. The absence of this clause takes away control from the lender and makes the loan freely assumable with or without the lender’s permission.
This creates very attractive financing because the buyer does not have to qualify for a new loan to buy the house. If he can satisfy the seller’s cash needs for a down payment, he can buy a house regardless of his credit or inability to qualify under normal standards.
With this type of deal, I recommend that the house be in excellent condition. You must get into these deals with very little cash. In fact, you can even buy these with no money down.
Sometimes, the sellers are two or three months behind on the payments, and you just pay the back payments and take over the loan. Often, you can sell the property before you have to take title to it.
If you find a buyer before you close, you can have the property deeded directly to the new buyer, and just pick up a check for the difference. If you buy a property for $1,000 down and sell it for $5,000 down, you keep the $4,000 profit.
Types of loans to look for
Many private loans do not contain a “due on sale” clause and are freely assumable. VA loans closed before March 1, 1988 and FHA loans closed before December 15, 1989 do not contain a “due on sale” clause and are freely assumable without qualifying.
VA and FHA loans closed after these dates also can be assumed, but require qualifying because there is a “due on sale” clause attached to the loans. Get in the habit of asking when the loan closed when you take the information over the phone.
There are thousands of available houses with good, non-qualifying FHA and VA loans. Most older VA and FHA loans may be assumed for a $45 to $125 transfer fee. As long as you are alive, you can assume the loan. There are no other requirements. Just take over the loan and make the payments.
Six keys to successful assumption deals
First, the house must be in good condition, needing few, if any, repairs. You shouldn’t spend more than $1,000 to purchase and repair a $50,000 property.
Second, pass by any deal if you can’t get into it with only a small investment of cash. If it doesn’t fit your guidelines, WALK AWAY. There are hundreds of other deals that DO fit. On the other hand, don’t walk away without leaving an offer. If the seller becomes motivated enough in the future, he may decide your offer looks pretty good after all.
Third, the property must have an assumable non-qualifying loan, or you must have a good working knowledge of seller financing to create it yourself.
Fourth, ask for the right amount of down payment when reselling the house. I try to carefully match the down payment with what I know about my potential buyer. If you are selling a $150,000 house, you would expect $10,000 to $20,000 down.
For a $50,000 house, you may not be able to get more than $5,000 down. It is usually difficult to get more than a 10% down payment, so a good rule of thumb is to keep it 10% or less.
Fifth, let your buyer pay all the closing costs. Just write it into the sales contract and act as though it’s normal. The contract determines who pays closing costs. Remember, buyers of assumptions often can’t qualify at the bank, so they tend to be a lot less picky than buyers who can qualify. You are in control, so you make the rules.
Sixth, try not to take title to the house. Ideally, you will have resold the house prior to the closing. As mentioned above, if you find a seller that needs $1,000 to get out of their problem, and find a buyer who has $5,000 to put down, you can set up a simultaneous closing and make $4,000 profit.
If you close and take title, however, you then become responsible for monthly payments and closing costs. Of course, I would recommend that you always have the house under contract before you try to market it, and you should be prepared to actually close if you can’t find a buyer before your contract expires.
When you become proficient at finding a buyer first and then find a house to buy, the entire process becomes much easier. I have done many of these assumption deals. Some I had to buy first. On many others, I did a simultaneous closing with the new buyer and seller present at the same closing. In that case, all I have to do is pick up my check and look for another good deal . . .