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otc

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It makes me very happy/hopeful that the townhome down the street from me has been sitting on the market since February and just had another price cut

I always figured the sellers were being greedy and kicking their tenant (who seemed like a nice guy) out to make a quick buck...but probably waited too long and the COVID boom was over.

Really I was just hoping the sellers wouldn't be able to get anywhere near asking...because if they actually got their insane price, that would be a bad sign for the rest of the local market.

But no...they just ate another $20k in price cut and have probably lost $10k in rent while the place has sat empty.
 

gettoasty

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Knowing little about it, it would seem favorable to the buyer "most times" as I think such types of assumable mortgages are like perks with favorable terms. Seems kind of SOL for the seller unless they have a liability release provision completed, which takes care of both 1 and 2 concerns.
 

bicycleradical

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Interesting...


I know someone who did exactly this with a recent home purchase. They bought from their neighbors who had a VA loan with a really low interest rate. In order to avoid paying the current higher interest rates, they assumed their neighbor's mortgage and closed a week ago.

This was completely new to me as well.
 

otc

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How do you handle price appreciation in a deal like that? Say house was worth $500k and you put down 20% so the loan sits at 400k. House is now worth 600k a year later and loan balance is $395k. Does the new buyer have to come up with $205k down to take over your loan? Do they take a second loan to make up the difference? Even with a 3.5% down or something, there will still be a big gap between loan and sale if there's been a lot of price appreciation.

Even ignoring that, the economist in me says that that shouldn't really matter for the buyer, right?

If I can offer you a 3% rate (by letting you take my loan), that just means I can charge you a higher price. Kind of like the inverse of pricing a bond...it doesn't actually matter what the written coupon rate on the bond is, you just adjust the price such that the combination of face value and interest matches today's market rates.

So I sell you the house with the assumable 3% loan, but I ask for more money (either in the form of higher down payment or making you take out a second loan to cover the difference) such that your annual payments/NPV come out to be basically the same as a new loan at today's rates? In the example above, you're selling them your loan for almost $1k a month less than today's market rates, wouldn't you just capture that elsewhere?

Of course residential real estate rarely behaves in such a rational fashion...I can see plenty of sellers leaving that money on the table and just letting you have the old loan for "free"...and I can see plenty of buyers who would be turned off at being "overcharged" for the house even though the assumed loan actually makes it cheaper for them.
 

gettoasty

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I think people just don't know as OP made the point of coupled with a lot of emotions in letting go a place and/or moving and falling in love with a new home. Nice to learn though if I move again.
 

gnatty8

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How do you handle price appreciation in a deal like that? Say house was worth $500k and you put down 20% so the loan sits at 400k. House is now worth 600k a year later and loan balance is $395k. Does the new buyer have to come up with $205k down to take over your loan? Do they take a second loan to make up the difference? Even with a 3.5% down or something, there will still be a big gap between loan and sale if there's been a lot of price appreciation.

Even ignoring that, the economist in me says that that shouldn't really matter for the buyer, right?

If I can offer you a 3% rate (by letting you take my loan), that just means I can charge you a higher price. Kind of like the inverse of pricing a bond...it doesn't actually matter what the written coupon rate on the bond is, you just adjust the price such that the combination of face value and interest matches today's market rates.

So I sell you the house with the assumable 3% loan, but I ask for more money (either in the form of higher down payment or making you take out a second loan to cover the difference) such that your annual payments/NPV come out to be basically the same as a new loan at today's rates? In the example above, you're selling them your loan for almost $1k a month less than today's market rates, wouldn't you just capture that elsewhere?

Of course residential real estate rarely behaves in such a rational fashion...I can see plenty of sellers leaving that money on the table and just letting you have the old loan for "free"...and I can see plenty of buyers who would be turned off at being "overcharged" for the house even though the assumed loan actually makes it cheaper for them.

Also most buyers will know they have a pretty good probability of being able to refinance that higher interest rate, lower priced home with no assumable mortgage, and pocket the savings. If they effectively prepay a mortgage rate differential by paying more for a home with an assumable, lower rate mortgage, they are basically giving up that option aren't they?
 
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Omega Male

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New backyard. Went with some reassuringly expensive artificial turf for low maintenance.

Pool Snapshot on 6-15-2023, 7꞉46 PM.jpg
 

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