Assumable mortgage properties

[5gluder]

I'm thinking of buying a rental property. In order for me to actually acquire a house i would have to assume the mortgage. My concern is if i buy a house what are the chances of the bank calling me in to requalify for the mortgage?

I have heard banks will leave you alone as long as you pay on time.

I have also heard banks calling you in to requalify, if don't qualfy they ask for the remainder of the mortgage or they foreclose the house.

Thanks

[googe]

Originally posted by 5gluder
I'm thinking of buying a rental property. In order for me to actually acquire a house i would have to assume the mortgage. My concern is if i buy a house what are the chances of the bank calling me in to requalify for the mortgage?

I have heard banks will leave you alone as long as you pay on time.

I have also heard banks calling you in to requalify, if don't qualfy they ask for the remainder of the mortgage or they foreclose the house.

Thanks

Are you in Alberta? If so, Alberta is currently the only province that you do NOT have to qualify to assume a mortgage.

Lenders are actually lobbying to change this, for somewhat obvious reasons.

[5gluder]

Yes i'm in Calgary. I know you don't have to qualify for an asssumable mortgage. What i'm reffering to is after the property has been bought. Meaning the bank calls you in 3 months after you bought the house.

[ehos]

Requalifying isn't a problem.

Even if you miss payments, the bank makes HUGE money off of mortgages.

And if they turn you down, just go to another bank, with the equity you have in the home, just about anyone will carry you (they'd be stupid not to).

[sputnik]

Originally posted by ehos
Requalifying isn't a problem.

Even if you miss payments, the bank makes HUGE money off of mortgages.

And if they turn you down, just go to another bank, with the equity you have in the home, just about anyone will carry you (they'd be stupid not to).

Banks just dont let anyone have a mortgage. You still have to qualify. 90% of the qualification of a mortgage is based on your debt ratios and if you are mortgaged for more than 32% of your income the bank CANNOT give you a mortgage.

Also, for all rental properties you have to have an uninsured mortgage in which means you will need a 25% initial downpayment.

I will stop talking now and let ZorroAMG take over.

[Toma]

You do not have to "re"-qualify in Alberta when you assume.

And mortages are hard to get if you own more then one property, since only half your rental income is counted as your income, so you would need to make pretty good dough to qualify. (total payments still cannot exceed 40% of your total income).

It's easier if you have 30% equity, but even then you at least need good credit.

The banking industry is all who you know and who you blow. I know some realtors, that ahve buddies who are appraisers and bankers. So they get an inflated appraisal, therefore looks like they have equity, and presto, easy mortgage....

I was constantly turned down, so I had to assume....

[Khyron]

Just curious why you'd want a 2nd morgage if a bank turned you down? I was approved for far more than I could really honestly afford (maybe if I just sat in the house and drank water). I've always felt that lenders let people borrow too much - so if they are saying no, doesn't that mean you're really over?

I suppose maybe if you have some nice plants that you don't want to mention, buying a 2nd house without wanting to show the income to pay for it makes sense.

Other cases where you got turned down but could really afford it?

Khyron

[Toma]

Originally posted by Khyron
Just curious why you'd want .....

Rental property is self sustaining. Banks get really bitchy with rentals. Primary residence is EASY.

I know people that could not qualify for 1 house 10 years ago, and now own 10 by assuming, sitting on some healthy equity, bank gets paid.... no problem. It's good for the economy, why would you take that away.

Assumables are only dangerous to the bank if they over lent on a property to begin whith (their own fault).

That's why.

[ehos]

Originally posted by sputnik


Banks just dont let anyone have a mortgage. You still have to qualify. 90% of the qualification of a mortgage is based on your debt ratios and if you are mortgaged for more than 32% of your income the bank CANNOT give you a mortgage.

Also, for all rental properties you have to have an uninsured mortgage in which means you will need a 25% initial downpayment.

I will stop talking now and let ZorroAMG take over.

Uh, yeah.

If you read his post, he was worried about the 're-qualification' when his mortgage term runs out.

NOT qualifying a new mortgage. But a pre-existing one that has come to term.

He's not asking about how much downpayment etc he needs, he's going to assume.

And he will have no problems renewing his term when it comes up. (Unless you're way behind on payments etc). Make your payments, and it's no worries.

Also, Banks DO let ANYONE have a mortgage in Alberta. (Ie, assumeables)

[max_boost]

Being no expert in this area, I don't see how there would be an issue with extending the term when the current one expires.

I have a few unemployed buddies who got their homes through assumables. They do have income, just not in the legal nature.

The thing they don't realize is, they are the third party in their transaction. Paying thousands more than the market value of their new home.

Example:
Buyer 1 pays $150K for a home
Buyer 2 pays Buyer 1 $175K for that exact same home
Buyer 3 assumes Buyer 2's $175K mortgage

Buyer 1&2 split the $25K profit.

[ZorroAMG]

Assuming a mortgage is perfectly legal (although frowned upon heavily by FI's) in Alberta and you do NOT have to requalify for a mortgage. The trick is, you have to come up with the cash difference. Ex: I buy a house for 200, put 50 down, mortgage of 150. Sell you the house for 250, you have to come up with the difference between sale price and current mortgage i.e. 100K. This is the main reasson why assuming mortgages doesn't happen more often.

Assuming mortgages for rental properties is the most common. People have either a tenant in hand to fill up the property but cannot qualify based on bank guidelines 32% GDS 40% TDS. Also if it is a revenue property and you already have a CMHC insured mortgage, you have to put at least 25% down. CMHC will RARELY let anyone carry 2 mortgages insured by them.


Your concern with the bank calling you is normal, but they won't. You make the payments, they're happy. When it comes time to renew the mortgage, you don't requalify, you just pick a term and negotiate a rate....then you're good to go again..

PM me if you have anymore questions, I am a mortgage specialist @ RBC

[sxtasy]

"$25,000 Cash to Mortgage to assume Low Fixed Rate Mortgage"
Does this mean it will take $25000 to assume this morgate?
Are there some smart ways to get around this cash down?

[sputnik]

Originally posted by ZorroAMG
Assuming a mortgage is perfectly legal (although frowned upon heavily by FI's) in Alberta and you do NOT have to requalify for a mortgage. The trick is, you have to come up with the cash difference. Ex: I buy a house for 200, put 50 down, mortgage of 150. Sell you the house for 250, you have to come up with the difference between sale price and current mortgage i.e. 100K. This is the main reasson why assuming mortgages doesn't happen more often.

Assuming mortgages for rental properties is the most common. People have either a tenant in hand to fill up the property but cannot qualify based on bank guidelines 32% GDS 40% TDS. Also if it is a revenue property and you already have a CMHC insured mortgage, you have to put at least 25% down. CMHC will RARELY let anyone carry 2 mortgages insured by them.


Your concern with the bank calling you is normal, but they won't. You make the payments, they're happy. When it comes time to renew the mortgage, you don't requalify, you just pick a term and negotiate a rate....then you're good to go again..

PM me if you have anymore questions, I am a mortgage specialist @ RBC

Great post!

So basically... his primary residence can be CMHC insured... and for his rental property he will need at least 25% in cash/equity to be able to requalify at the end of the mortgage which was assumed.

Right?

[ZorroAMG]

Originally posted by sxtasy
"$25,000 Cash to Mortgage to assume Low Fixed Rate Mortgage"
Does this mean it will take $25000 to assume this morgate?
Are there some smart ways to get around this cash down?

25k is the diff between the mortgage remaining and the purchase price.

The only way "around" this cash down is a loan or a line of credit for the 25K. Then you'll have the mortgage and more debt. People, you really need to have the cash to assume the mortgage... unless you plan to crash our good RE market with a bunch of forclosures LOL

Sputnik, thanks for the feedback. It can be the other way around though...for example you bought your primary residence with 25% down, then buy a rev prop for 10%. All you really have to realise is it's one CMHC insured property at a time.

As for requalifying, you don't NEED to requalify for a mortgage unless you are doing something different like refinancing to pull the equity out (up to 75%) or porting the mortgage to a new property etc...if you are leaving it as is, there is no requalifying for the mortgage. Ever. Even after 15 yrs, you just renew the mortgage for another term and get a rate and voila!

Hope that helps...

[ZorroAMG]

Originally posted by Toma


Assumables are only dangerous to the bank if they over lent on a property to begin whith (their own fault).

That's why.

Ummm, nope. Assumables are dangerous/not liked by us because we have no control over who the new person supposedly making the payments are. We don't know if they can really afford it. We don't know if they have a secure job. We don't know their credit history and their ability/track record to pay debt. (speaking about assuming a home to live in it)

With regard to rental property assuambles it's the same thing....we look at all of the above but also factor in the client's ability to carry 2 mortgages, should the place stay vacant for a period of time...we get market rent letters to get an idea of how much revenue it will generate and that is how we determine revenue props

[sputnik]

Originally posted by ZorroAMG

Sputnik, thanks for the feedback. It can be the other way around though...for example you bought your primary residence with 25% down, then buy a rev prop for 10%. All you really have to realise is it's one CMHC insured property at a time.

As for requalifying, you don't NEED to requalify for a mortgage unless you are doing something different like refinancing to pull the equity out (up to 75%) or porting the mortgage to a new property etc...if you are leaving it as is, there is no requalifying for the mortgage. Ever. Even after 15 yrs, you just renew the mortgage for another term and get a rate and voila!

Hope that helps...

So if you assume a mortgage with less than 25% down, how does the CMHC fit in? Are you essentially just assuming the "already insured mortgage" thus leaving your exposure to ultimately 2 insured mortgages (which shouldnt be allowed under normal circumstances).

[Toma]

Originally posted by ZorroAMG


Ummm, nope. Assumables are dangerous/not liked by us because we have no control over who the new person supposedly making the payments are......

Not what I meant. The equity in the property is the banks security. If they originally issued a mortage OVER market value, then if the person defaults, the bank is fucked. With equity, they can sell it easy.

[sxtasy]

So after August 1, you must qualify to assume. What if you get into an assumable before August 1, you wont need to qualify until you have to re-negotiate your mortgage terms right? Or come August 1st will you have to qualify?

[ZorroAMG]

Originally posted by Toma


Not what I meant. The equity in the property is the banks security. If they originally issued a mortage OVER market value, then if the person defaults, the bank is fucked. With equity, they can sell it easy.

Yeah but what I'm saying is that should not ever happen, unless the market crashes or goes quite downward. When CMHC insures a property the do an appraisal, when it is conventional, a private party appraiser takes one and if it appraises for less than the purchase price, the buyer has to come up with the cash difference...

So what you are saying RARELY happens, thus it is not a concern for the bank...

[Toma]

Originally posted by ZorroAMG



Yeah but what I'm saying is that should not ever happen, unless the market crashes or goes quite downward. When CMHC insures a property the do an appraisal, when it is conventional, a private party appraiser takes one and if it appraises for less than the purchase price, the buyer has to come up with the cash difference...

So what you are saying RARELY happens, thus it is not a concern for the bank...

Phony appraisals rarely happen?? hahahahahahahah half the NE rentals are mortgaged through phoney appraisallss.