Over Paying?

[Thomas_Thumb]

Daughter and son in law are hoping to purchase a resale home in the San Diego area. True market value of the house is at most $875k with a listing price of $899k. The local market is softening and a number of listings have been  reducing inflated asking prices by 5%. Anticipate the trend of price drops will continue.

Here is the situation: they offered $875k with the intention of putting 20% down in combination with a new, 1st time home buyer, 30 year VA loan. However, another party offered $905k. My daughter's agent said the other party is having difficulty securing financing. As a result, the seller's agent has offered to sell daughter/husband the house for $890k.

Daughter's agent found out the seller has a 30 year VA loan from April 2021. Son in law is a navy seal which opens up the option of assuming the loan although the listing does not mention loan assumption as an option. Original loan was for $768k at 2.375% with $0 down. Current loan balance is around $700k.

We all feel $890k is too high for a new loan at todays interest rates (say VA at 6.125%). The plan is to counter the seller with a $930k offer based on loan assumption along with 1% ernest money in escrow. It is hoped this is sufficient to entice the seller to go through the loan assumption paperwork. The seller is taking a new job out East and had recently dropped listing price from $949k to $899k.

FWIW - Their Fico mortgage scores are all above 780.

Thoughts?

[Horseshoez]

@Thomas_Thumb, yeah, I'll take the higher loan amount at the lower interest rate versus the opposite any day.  That said, I'd probably only offer somewhere in the $905,000 to $915,000 range.  Why so much lower?  Because your daughter and son-in-law are much better qualified candidates and that greases the wheels as far as sellers are concerned.

A year ago we ran into a similar situation, we got out-bid by $65,000 on our condo; the seller agreed to give us the nod if we were to bump our offer by only $10,000, we did, and we closed three weeks to the day after our unit was posted for sale.

[Thomas_Thumb]

Thanks.

I'd suggested $925k, my daughter likes $915k but their agent (also a navy seal) and son-in-law are fixated on $930k. The 2.375% assumable is influencing their thinking too much - imo.

BTW - amount remaining on the seller's loan is just under $700k. That is about the same amount as they would have based on: A purchase at $875k with 20% down and a new loan of $700k - but assumable is a much lower interest rate.

[Kforce]

Don't know how much work, time, document's, etc are involved with the loan assumption.

I would think $20,000 extra 910k would be enough incentive if the seller knows the buyer would qualify.

Even at the 930k price, daughter & son-n-law would save a lot with the loan assumption.

Just a case of how much extra to make them change direction.

Average of opinions = 920k

[ShanetheMortgageMan]

Did the seller advertise that the home has an assumable loan?

While VA mortgages are assumable, unless your daughter or her husband is an eligible veteran and swaps in their entitlement, then the seller's VA entitlement will still be tied up into that mortgage until it's paid off.  The seller might be trying to use their VA entitlement to purchase a new home with a VA mortgage, which in that situation they may not have enough entitlement to get 100% financing on it.  If your daughter or her husband are eligible veterans, then they can swap their entitlement with the sellers which would allow the seller to purchase again using VA and 100% financing.  Just something to consider.  

[Thomas_Thumb]

@ShanetheMortgageMan 

Swapping eligibility is important to seller and was verified by buyer's agent. So, only issue for seller is whether or not the paperwork and time to process it is worth an additional $15k to $40k in proceeds to the seller.

Buyers have cash on hand to pay difference between purchase price and remaining loan amount.

[ShanetheMortgageMan]

It sounds like it'll all depend on what the seller's timeline is, if they can hold off on completing the sale of their home then the increase net proceeds will be well worth it for them IMO.  Hope it all works out for the kids!

[Thomas_Thumb]

Thanks.

Given time is sufficient, I suspect the seller would accept $915k or $930k. It's the buyer's money so EOD if they decide to stick with $930k for a perceived slam dunk I'll resist being an arm chair quarterback.

Appreciate everyone's feedback and I passed along some added thoughts to DD.

[Thomas_Thumb]

Easy peasy - the seller accepted $930k for assumable. The navy seals got their way on offer price.

The house was built in the mid 80s. Hopefully the high offer will allow the seller to be more open to price concessions - if issues are uncovered during home inspection.

[ShanetheMortgageMan]

Boom!  Glad they got the home!