More on Assumable (With Qual) VA loans - Posted by Sandy FL

Real Estate Investing Real Estate Financing
1

Posted by JPiper on April 02, 1999 at 17:16:29:

If you take the loan over “subject to” you will violate the due on sale clause. The only way to avoid this is to formally assume the loan (meaning you will have to qualify) or pay the loan off (meaning you need enough cash or a new loan).

However violating the due on sale clause can be dealt with. You could as an example have the property deeded into a trust (an action that does not violate the due on sale clause). You would then have the beneficial interest in the trust assigned to you. This violates the due on sale clause. However, since the assignment is out of the sight of the lender, and is not a recorded event, your likelihood of being detected is low. Read some of Bronchick’s articles in the How To section of this site?there’s a couple of articles regarding this located there.

You could also lease/option the house for the loan balance. You could then sublet this to a new tenant/buyer, or assign your lease/option?.depending on your preference.

Either way, the key in this case is going to be whether you can get in with little or no upfront cash?.because you have no equity to earn here?just upfront cash and cashflow.

JPiper

2

More on Assumable (With Qual) VA loans - Posted by Sandy FL

Posted by Sandy FL on April 02, 1999 at 10:22:18:

My buddy Mark R in KCMO found me this, on VA loans… this might help others of you trying to figure out the VA stuff – assumable… etc (Mark is in hibernation this week with his new John Behle materials… like a kid at Christmas, LOL)

from http://www.va.gov/vas/loan/pam26-6.htm#part5

See “Look Here ***” Below

If you should decide to sell your home and the VA loan was made on or
after March 1, 1988, you may not allow someone else to assume that loan
or “take over the payments” without the prior approval of VA or your
lender. Should you fail to obtain this approval, your lender has the
right to declare your entire loan balance due and payable at once and
may foreclose the mortgage and file a claim with VA. You would be liable
to VA for the amount of any claim paid in such a situation. If you have
an older VA loan and do not have to obtain prior approval for someone t~
assume that loan, you will remain personally liable for any claim paid
in the event of loan default, unless you obtain a release of liability
from VA.

You can sell your property and avoid future liability: (1) by seeing
that your VA loan is paid in full (either by the Purchaser paying all
cash or obtaining his or her own loan); or (2) by obtaining prior
approval from your lender for the purchaser to assume your VA loan with
your release from liability; or (3) by obtaining a release of liability
directly from VA if you do not have to obtain the prior approval from
your lender for an assumption.

To apply for approval of the assumption of your VA loan, contact the
lender to whom you send your monthly payments. You will receive the
necessary instructions and forms for you and the purchaser to complete
and return to the lender. If the VA loan is current and the purchaser
appears to be a satisfactory credit risk and agrees to assume your
liability to VA and the lender, then the assumption may be approved.

If the lender believes a prospective purchaser will not be able to repay
your VA loan, you may appeal this determination to the VA regional
office that processed your VA loan. That office may be able to approve
the assumption.

L O O K H E R E

If VA does not approve the assumption, and if you have been unable to
find another purchaser and cannot afford to continue the payments on the
VA loan, then you may apply to VA for special approval of the
assumption. If special approval is granted, you will remain secondarily
liable to VA if a claim is later paid on your loan.

If your loan was made prior to March 1, 1988, then you must apply
directly to VA for a release of liability. The process followed by VA
will be similar to that followed by a lender making a decision about the
prior approval of an assumption of a newer loan.

Selling your home and allowing someone else to assume the VA loan will
not permit you to reuse your benefit. In order to qualify for
restoration of your entitlement so that you may use it to obtain another
VA loan, you must (1) sell your home and have your VA loan paid in full,
or (2) sell your home to an eligible veteran who will assume your VA
loan and substitute his or her own entitlement. Approval of the
assumption of a loan made on or after March 1, 1988, must first be
obtained from the lender, and then VA will process the substitution of
entitlement. VA can process a request for release of liability and
substitution of entitlement on an older loan at the same time.

Hope this helps

Sandy

3

Re: More on Assumable (With Qual) VA loans - Posted by MilNC

Posted by MilNC on April 02, 1999 at 16:03:34:

Dear Sandy, also J Piper–thanks for th posts.
I went to the site, but did not find my question addressed, so I emailed them.

This is the question: If a Vet wants to buy a duplex,
triplex, or 4-plex,and live in one unit, how much of the rent from the other units is applied toward qualification, as income qualification.
Thanks.

4

Re: More on Assumable (With Qual) VA loans - Posted by JPiper

Posted by JPiper on April 02, 1999 at 10:46:30:

Just so that no one is confused by the last paragraph in this information…“Selling your home and allowing someone else to assume the VA loan will not permit you to reuse your benefit…”

You may obtain more than one VA loan as long as the total VA loans do not exceed your VA entitlement, as long as you qualify under income guidelines. Example: if you have an outstanding balance on a VA loan of $100K, someone assumes it, you may get another VA loan of approximately $105,000 if the entitlement is $205,000 (this is about what the maximum is right now).

I bring this up because there is widespread confusion over this issue amongst various lenders…perhaps because of info put out by VA themselves. But the above scenario is one that I’ve actually done several times, while the loan officer assured me it was against the rules. It isn’t.

JPiper

5

Re: More on Assumable (With Qual) VA loans - Posted by JPiper

Posted by JPiper on April 02, 1999 at 17:17:59:

I believe it’s 75%…you should probably check this with a lender.

JPiper

6

Re: Question on Assumable (With Qual) VA loans - Posted by JimR

Posted by JimR on April 02, 1999 at 16:00:40:

Jim,

Met you briefly in Dallas… I want to thank you for the inspiration and advice you give so generously to all of us on this site.

The timing of this post for me was fortunate, as I am attempting to work a deal involving an offer on a FSBO who seems highly motivated and has one of the newer assumable (w/qual.) VA loan at 7%. I am fairly new at creative investing, and based on some of the ideas and advice I have, I’m thinking along the lines of making a “subject to” offer - that I could then adv. & sell as “no qualifying, no banks”, etc.

It sounds like, based on the information above (Sandy FL’s post) that if I, or an eventual buyer of mine takes over payment of the VA loan, “Subject to” that it may be called unless I go through those approval steps… and also we’d probably loose the non-qualifying aspect of taking it “subject to” the existing VA loan…(?)

Is this likely a good plan, or are other strategies better for this situation? (His mort. bal. is fairly close to FMV- however he is very motivated.) I would be happy with either a short-term profit or cashflow.

Advice and suggestions from anyone is greatly appreciated.

JimR