OUTSTANDING! I was hoping you would make a video about this...and you did...without me even asking! True pro's speaking in this video. Thank you for sharing!
Hi there! It's absolutely possible to do an assumption of a multi-family using a 1031 exchange. Sam, the client with whom I spoke in this video, purchased a duplex (although he wasn't doing a 1031 exchange). A few things come to mind with regard to a 1031 exchange (with the big caveat that you should talk to a qualified exchange facilitator about all of this): 1) 1031 exchange rules require that the new property be at an equal or greater price, with an equal or greater amount of debt relative to the "relinquished" property. When I set up a new loan for a client doing a 1031 exchange, I work closely with them to fine-tune the loan amount and make sure it's big enough to meet this requirement, but no so big that it generates "boot" that would be taxable. When you assume a loan, you can't make it any bigger than it is (you can pay it down) (in fact you may be required to pay it down if you're buying as an investment property). Assumptions are already a bit of a needle in a haystack, but you'll have to shop for one that just happens to align with the requirements based on the property you're selling. 2)You only have 45 days to identify a replacement property after you close on the sale of the relinquished property. Most of my clients doing a 1031 exchange get pre-approved for their loan with me ahead of time and then move quickly to find a property, get into contract, inspect it and make sure it's going to work, while they still have time to switch to a back-up property if anything doesn't look good with the initial property. Assumptions move sloooowly. So you will have all of your eggs in one basket and probably won't have the chance to identify another property if, for example the assumption doesn't work out. (Or by the time you find out, any back-up properties you identified may have sold to another buyer.) As such you'll be exposed to the risk of not being able to complete your exchange and getting stuck with a capital gains tax rule. You might want to explore a plan B that covers this risk, such as a DST. Again, I'm not an expert at this stuff... but from my experience and perspective, an assumption + a 1031 exchange feels like a very small needle to thread with lots of chances to not work out. But, let me know if you pull it off... I'm rooting for you! 🙂
@@beatthetrap777 Oh got it! The longer timeline is actually a (partially) good thing for you. You should have lots and lots of time to search for a replacement property. The only downside is the vague timeline for closing may not be all that appealing to sellers. Shoring up all of the other elements of your offer, including getting a really solid pre-approval in place would be a good idea. If you want help with a pre-approval, I know a good lender. 😁👈 I really would love to talk! 503-799-3711 / juleef@rate.com
@@beatthetrap777 Yes, you should request an assumption package from your loan servicer. Once you grant permission (the process for that should be in the package), your buyer will then work directly with your servicer to apply for approval to assume your loan. That's the process Sam talks about in the video.
Do a seller's FHA mortgage payments need to be current (on time) in order for a buyer to assume their mortgage? What if the seller is 6+ months late and on the verge of foreclosure?
Hi David! All of the rules for FHA loan assumptions are in HUD Handbook 4000.1. The current version is at this link: www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsghhdbk1223.pdf The guidelines for the assumption process start on page 492 (which is page 517 of the PDF). Your question is one on which the guidelines are silent. They don't speak to the status of the current loan, so my advice would be to have the current owner/seller contact their loan servicer and ask about the procedure. My best guess is that you will probably be allowed to apply for an assumption, but that before you can consummate it (if approved), the loan will need to be brought current. Assumptions can take a few months to process, so the current owner should stay in close tabs with the servicer and make sure the property doesn't go to foreclosure sale before the assumption goes through. You'd hope the lender would stall the foreclosure if someone's applied for an assumption, but very often the right hand doesn't know what the left hand is doing at loan servicing companies. Best of luck! If you think of it, post a reply and let me know how things go... I'm curious to learn what the servicer says and how things unfold!
Oh and one more note! The rules for foreclosures are in this handbook too... they start on page 1295 (page 1320 of the PDF). BUT state laws will dictate a lot of the foreclosure process.
Did the lender PennyMac recast your mortgage having to put 25% down as an investment? Or did your balance go down but payment was still the same and it just shorten the years needed to pay back?
Government loans (FHA,VA and USDA) are not recast eligible. So when a principal reduction is required, as it was in Sam’s case because he was purchasing the property to be a rental. It is applied to the principal, but does not affect the monthly payment. The principal reduction shortens the loan term. If you have any other questions, let me know! Thanks for watching! 😁
OUTSTANDING! I was hoping you would make a video about this...and you did...without me even asking! True pro's speaking in this video. Thank you for sharing!
I guess we’re on the same wavelength! Happy you enjoyed the video! 🥰
What abiut doing an assumption on a 4plex with 2.5% rate. ?im think about selling and doing a 1031
Hi there! It's absolutely possible to do an assumption of a multi-family using a 1031 exchange. Sam, the client with whom I spoke in this video, purchased a duplex (although he wasn't doing a 1031 exchange).
A few things come to mind with regard to a 1031 exchange (with the big caveat that you should talk to a qualified exchange facilitator about all of this):
1) 1031 exchange rules require that the new property be at an equal or greater price, with an equal or greater amount of debt relative to the "relinquished" property. When I set up a new loan for a client doing a 1031 exchange, I work closely with them to fine-tune the loan amount and make sure it's big enough to meet this requirement, but no so big that it generates "boot" that would be taxable. When you assume a loan, you can't make it any bigger than it is (you can pay it down) (in fact you may be required to pay it down if you're buying as an investment property). Assumptions are already a bit of a needle in a haystack, but you'll have to shop for one that just happens to align with the requirements based on the property you're selling.
2)You only have 45 days to identify a replacement property after you close on the sale of the relinquished property. Most of my clients doing a 1031 exchange get pre-approved for their loan with me ahead of time and then move quickly to find a property, get into contract, inspect it and make sure it's going to work, while they still have time to switch to a back-up property if anything doesn't look good with the initial property. Assumptions move sloooowly. So you will have all of your eggs in one basket and probably won't have the chance to identify another property if, for example the assumption doesn't work out. (Or by the time you find out, any back-up properties you identified may have sold to another buyer.) As such you'll be exposed to the risk of not being able to complete your exchange and getting stuck with a capital gains tax rule. You might want to explore a plan B that covers this risk, such as a DST.
Again, I'm not an expert at this stuff... but from my experience and perspective, an assumption + a 1031 exchange feels like a very small needle to thread with lots of chances to not work out.
But, let me know if you pull it off... I'm rooting for you! 🙂
@@workshopmortgage thanks! I'm the one actually thinking about selling the property
@@workshopmortgage also to do an assumption all I need is the assumption package?
@@beatthetrap777 Oh got it! The longer timeline is actually a (partially) good thing for you. You should have lots and lots of time to search for a replacement property. The only downside is the vague timeline for closing may not be all that appealing to sellers. Shoring up all of the other elements of your offer, including getting a really solid pre-approval in place would be a good idea.
If you want help with a pre-approval, I know a good lender. 😁👈
I really would love to talk! 503-799-3711 / juleef@rate.com
@@beatthetrap777 Yes, you should request an assumption package from your loan servicer. Once you grant permission (the process for that should be in the package), your buyer will then work directly with your servicer to apply for approval to assume your loan. That's the process Sam talks about in the video.
Do a seller's FHA mortgage payments need to be current (on time) in order for a buyer to assume their mortgage? What if the seller is 6+ months late and on the verge of foreclosure?
Hi David! All of the rules for FHA loan assumptions are in HUD Handbook 4000.1. The current version is at this link: www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsghhdbk1223.pdf
The guidelines for the assumption process start on page 492 (which is page 517 of the PDF).
Your question is one on which the guidelines are silent. They don't speak to the status of the current loan, so my advice would be to have the current owner/seller contact their loan servicer and ask about the procedure.
My best guess is that you will probably be allowed to apply for an assumption, but that before you can consummate it (if approved), the loan will need to be brought current. Assumptions can take a few months to process, so the current owner should stay in close tabs with the servicer and make sure the property doesn't go to foreclosure sale before the assumption goes through.
You'd hope the lender would stall the foreclosure if someone's applied for an assumption, but very often the right hand doesn't know what the left hand is doing at loan servicing companies.
Best of luck! If you think of it, post a reply and let me know how things go... I'm curious to learn what the servicer says and how things unfold!
Oh and one more note! The rules for foreclosures are in this handbook too... they start on page 1295 (page 1320 of the PDF). BUT state laws will dictate a lot of the foreclosure process.
Did the lender PennyMac recast your mortgage having to put 25% down as an investment? Or did your balance go down but payment was still the same and it just shorten the years needed to pay back?
Government loans (FHA,VA and USDA) are not recast eligible. So when a principal reduction is required, as it was in Sam’s case because he was purchasing the property to be a rental. It is applied to the principal, but does not affect the monthly payment. The principal reduction shortens the loan term.
If you have any other questions, let me know!
Thanks for watching! 😁