Finding the right appraiser...

[Elliott]

Woooah. Back the truck up. You are proposing two incongruent scenarios. If your terms of sale was the buyer assuming your existing loan, then there would be no need for the 'lender's appraiser' to do an appraisal. The buyer would have to make a down payment equal to your sales price - the assumable mortgage. If the buyer isn't able to make the difference, then the 'lender appraiser' will value the home at market value. The terms for the buyer will be set between the lender and buyer at current interest rates. It is doubtful the buyer's lender would accept a second position to 'your' first mortgage.

 

[Tom D]

Dam, i was writing a brilliant appraisal reply, and then you answered it perfectly. And i was a r.e broker who did see a couple long ago during high rates pres carter years. But, still very rare.

 

[Mark K]

It depends on the type of value for the appraisal. For market value, which is the most typical, you are correct.

I was thinking more for the buyer to consider how much of a premium to pay. I don't think an appraiser should take the financing into consideration.

 

[shrubberyvaluation]

I was thinking more for the buyer to consider how much of a premium to pay. I don't think an appraiser should take the financing into consideration.

Absolutely, its not going to be the difference with a discount because of possibilities of interest rates dropping in the future.

 

[Mark K]

When interest rates were 12%+, a low assumable mortgage was a really good deal. It has to be quite a bit lower than current market rates to attract a premium.

In 1982 I had a 9% assumable mtg and, even when the market was in the dumps, I had a LOT of buyers wanting the house and it sold for a bit of a premium, probably 3-5%, and at full price. Mtg. rates at the time were 15%+/- for 30 yr. fixed. Then I was on the buying end for the next house and best I got was 13% fixed for 5 years.

Still in the same house today and refi'd 4 times over 8 years. 13 down to 11, to 9, then to 7 and then paid it off after 14 yrs. I kept making the same payment amount from the 13% loan. Luckily the loan was with a local bank and to refi, all you had to do was pay $500 and they re-wrote the note. That was it.

 

[RCA]

My wife and I will be selling our house. There are plenty of comps right in the neighborhood, including model matches. When the Buyer's Lender's appraiser comes out, there shouldn't be a problem.

However, we just recently learned that our mortgage is assumable (we're getting written confirmation from the lender). It's at a fixed 3.5% until 2047. With current average mortgage rates at around 6.75%, this presents a great savings opportunity for the buyer, should he or she assume it. So, whatever the comps indicate now, this savings is a premium and should be added on to the final purchase price.

Just to be clear, I don't care what this premium is. I don't care to know how to figure it out (at least not yet).

What I want to make sure of, though, is whomever the buyer's lender sends out to appraise our property, that appraiser will know how to value the assumable loan savings.

So how can our Listing Agent prepare for this?

Thanks.

As you already know, the value of this assumable mortgage is independent of the market value of the home. The lenders invariably want to see the market value without special financing. However, the appraisers would want to separately handle the net present worth of the assumable loan, all depending on client requirements.

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Rough Analysis:

It appears you have had the mortgage for about 7 years, assuming a 30 year mortgage. So, there is still about 23 years left on payments. Estimate current net value on the 23 years of payments at your given interest rate. Then determine how much more a current buyer is likely going to want to borrow.

Then consider that if the buyer still needs another loan, that would be two loans. That can complicate things, as the secondary mortgage will definitely be at a much higher interest rate - over today's current high rates.

Now add in that home prices in California have increased 40-50% over 2017 values. So, that probably does mean that the buyer will have to take on a second loan that is 35%-40% of your original loan value.

Consider that a second mortgage will run you from 7.5-9.5%, probably 8.5% compared to your 3.5% or compared to the current primary rate of about 6.5%.

The buyer, roughly speaking, saves 3% on the amount your current loan is worth, but has to pay it off in 23 years (i.e. higher monthly payments), then he has to pay about 1.5-2% more than the current primary rate (1.5 -2% over 6-7%) for the remainder he has to borrow. Is it worth it for the buyer to have to deal with this complication and additional risk? Probably it is. But you have to run through the calculations and decide yourself.

 

[Sadie]

Woooah. Back the truck up. You are proposing two incongruent scenarios. If your terms of sale was the buyer assuming your existing loan, then there would be no need for the 'lender's appraiser' to do an appraisal. The buyer would have to make a down payment equal to your sales price - the assumable mortgage. If the buyer isn't able to make the difference, then the 'lender appraiser' will value the home at market value. The terms for the buyer will be set between the lender and buyer at current interest rates. It is doubtful the buyer's lender would accept a second position to 'your' first mortgage.

I think the new lender would accept second position on the loan. It happens frequently as a second motgage or HELOC. But of course, the added risk to the lender results in a greater interest rate. Any positive from the lower first mortgage might be reduced or completely erased by the higher rate of the second. Or the buyer may end up paying a greater overall rate when the first and second are weighted and averaged.

 

[RCA]

I think the new lender would accept second position on the loan. It happens frequently as a second motgage or HELOC. But of course, the added risk to the lender results in a greater interest rate. Any positive from the lower first mortgage might be reduced or completely erased by the higher rate of the second. Or the buyer may end up paying a greater overall rate when the first and second are weighted and averaged.

It really depends on how much the buyer is going to pay. Just imagine that he doesn't actually need a second loan - or in any case can get by with a small loan, - then the assumable loan could be a good deal. So, you do need to first determine the size of the second loan before you run your calculations.