Question:
Hi Steve,
My wife and I are in a pickle. We own a home in Wasilla Ak but live in WA state.
We have owned the home for over 10 years and owe around 240K on it still.
My tenant wants to purchase the home, and we have an assumable loan, but Wells Fargo is giving him issues to do that.
We have never missed a payment on that home. We want to get another home loan or a construction loan for some property we own in WA.
But with the home loan in Alaska it brings our DTI up around 50% and without it we would be around 18%.
Is there anyone out there that looks at the history and solid feet on the ground and would give us a chance to apply for a home loan?
We feel very trapped right now and of course, the credit score is no problem for both of us.
Please advise. Thanks.
Randy
Answer:
Dear Randy,
An assumable mortgage! Wow, I haven’t dealt with a question like that in years: an oldie but a goodie.
Assumable Mortgages
It used to be that an assumable mortgage was a dream because the purchasers could slide into the home with ease. That ended a long time ago.
Just because a loan is assumable, meaning that someone can take over your place in the mortgage, doesn’t mean they don’t have to be approved by the lender.
I would “assume” the loan is either an FHA loan, USDA Loan, or VA Loan. Each type of loan has different rules. But whatever you do, pay close attention to the process that releases you from liability for the previous mortgage. It is not always automatic.
But generally, the lender will have credit and/or loan-to-value requirements the tenant will need to meet, and it sounds like that is where the stumbling block is.
If the problem is just a Wells Fargo administrative quagmire, the tenant should apply for a new mortgage. The best place to look for that would be with a local mortgage broker representing several different lenders. Alternatively, if your tenant has a relationship with a local bank or credit union, and I checked to see how many were there, they should talk to the bank they have a relationship with.
If your tenant can’t qualify to assume the mortgage or find a loan with a mortgage broker or local bank or credit union, then you have to consider selling the property to someone else once the lease is up.
In the past, a bridge or construction loan was easy to get. But during the pandemic, these are difficult times. You see, a bridge or construction loan can be riskier, and this is not a time lenders are feeling brave and confident.
So let’s look at some obvious solutions.
- Talk to a Local Lender – The same rules apply for you. If you have a relationship with a local bank or credit union, talk to them openly and as a good customer.
- Equity Loan – If you have a substantial amount of equity in the AK home, you could consider borrowing some of the equity to help with the WA property. But that can be pretty risky.
- Watch Your Risk – Jumping at a construction loan offered by a second-tier lender can be riskier. Construction projects are not always on-time and neat operations. If you get a construction loan that requires you to have the home finished by a specific date and does not give you the right to extend, you could find yourself in hot water.
Bottom line – If your tenant can’t qualify to purchase the property or assume the mortgage, sell the AK property, and build your WA dream home.
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