Gap loan?

[al dente]

We're tentatively looking at a house with a VA assumable loan. There's about $400k between the loan and purchase price and our realtor mentioned needing a gap loan for that, but that they're difficult to get. I've been googling but still don't fully understand. A lot of what I read with them had to do with if you flip properties at a high volume and using a gap loan in that situation. Which is not our situation...

Has anyone done a VA assumable loan? A gap loan? What about gap loans make them so difficult?

We qualify for a VA loan and the amount is below our what's left for our entitlement so that part I feel ok with. I'm not sure what kind of stuff to be looking up, everything I read is the same basic stuff but not the details.

[aprilsails]

I probably don't have any useful information for you, but they are fairly common in Canada and known as bridge loans. However, my understanding is that they are getting more difficult to obtain here as well. For our latest sale/purchase we had a five day bridge loan and all told with lawyers fees, interest, etc it cost us in the range of $2500 for a $650,000 loan for those five days. The actual interest was $500 or $600, and the rest was lawyers fees for drawing up the paperwork and processing the two separate payments, and the admin fees associated with the loan.

I can see now why they are becoming less popular. My Mom is going to be living in a hotel for two days between her sale and purchase this week since they didn't want the hassle.

[Susie]

We briefly looked into a bridge loan when we bought and (then) sold in 2021.  None of the lenders we talked to offered them, or offered them "anymore."  Everyone involved strongly suggested finding another solution to the problem, rather than hunting for a lender who offered them.

We ended up buying the new house with 5% down, then selling the old house, and when the dust settled on both transactions about 6 months into our new mortgage we paid it down to 80% LTV to remove PMI and effectively have our 20% down.  We also re-amortized at that time.  The total costs were about 6 months' worth of PMI, maybe a $150 fee to re-amortize (optional), and they initially charged but then refunded a $250 or so fee for appraisal.  All in, it was a pretty tidy, low-paperwork and low-stress solution.

I don't have any experience with VA loans at all, apart from our buyers using one to buy our old house.  

[ellipses84]

I’m not sure how this would work. The best thing you can do is talk to a mortgage broker who primarily does VA loans and has helped successful purchases like this. I assume you are talking about taking over someone else’s VA loan to keep the low interest rate, but I think that means they probably can’t get a VA loan for another house or use your own VA loan for the difference on the same house because you can only have 1 VA loan at a time (but maybe I’m wrong since there are 2 separate parties involved). I think most people who do this pay cash for the difference. Thats a huge gap for a bridge loan. If it’s a HCOL / high income area it could be possible, especially if the bridge loan is less than the VA loan you are taking over.

We had a VA loan on our first house and talked to a mortgage broker in 2020 who planned to compare the other loan types to make sure we were making the best decision financially considering pros and cons (but we were looking at fixer uppers which a VA loan may not allow).

[ellipses84]

If you are eligible for a VA loan, is it solely the interest rate that is stopping you from taking out your own VA loan for the full amount?

Do you know the seller?

[al dente]

Nov 27, 2023 22:11:02 GMT -5 ellipses84 said:

If you are eligible for a VA loan, is it solely the interest rate that is stopping you from taking out your own VA loan for the full amount?

Do you know the seller?

no we don't know them, but their assumable is 2.29, currently VA loans are 6.4 I believe? If we assume with a VA loan it gives the sellers back their full entitlement so they aren't limited. We could sell our house and be pretty close to the 400k, but in talking to the realtor it seems pretty complicated.

But, we went and saw it in person and let's just say the photographer knew their angles lol. There were whole holes in the floor, the flooring didn't go to the baseboards (like wherever the piece ended closish to the baseboards is where the flooring ended so it wasn't even an even across), and the kitchen cabinets were very crooked in person. For an over million dollar house 😭 so we are back to saving and working on getting our current house ready for sale one day.

[al dente]

And this is just a random vent. But they purchased in 2020 for under 800k, and now three years later are listing at 1.1 mil. It's obnoxious how much single family homes have gone up so quickly.
We have a townhouse which I really don't mind space wise, but our HOA keeps going up every year and now we're at close to $800/mo in HOA fees. And then they don't cover stuff and are so difficult to work with. So the entire reason we're wanting a single family is just to get out of the racket that the HOA system is. Either way though you just run through money.

[ellipses84]

It’s probably for the best then. If you find another similar situation, it sounds like you could could make the offer contingent on your current house selling if that $$$ + low interest VA loan transfer is equal to the cost of a new house.

I can relate. I live in a neighborhood of million dollar small SFHs, many of which haven’t been updated ever, even through they were bought for $20-$30k in the 1950s, or they have shoddy DIY work, or they are a cosmetic flip with issues underneath. The prices don’t reflect the difference in quality updates, everyone thinks they can sell for that threshold. I don’t mind townhome living but I hate the HOA fees. We are currently in a 4 bedroom rental SFH. As the kids get older and I go back to working in an office more, I’ve considered buying a tiny 2-3 bedroom with a yard big enough to add an ADU to for an office/ guest house.

[al dente]

ellipses84 exactly! Thank you for the commiseration. I mostly complain to my mom who can't fathom SFH over like $300k so she's always like "well just offer less! Something will come in the market that's updated" like ya theres updated homes on the market... For 1.5mil + and even these gross terrible homes get snatched up so a below asking offer doesn't even get considered. Gahhh anyways that's the end of my complaints lol.