what you need to know and how to find them

I've been hearing a lot of talk about

Assumable Mortgages

What is an assumable mortgage and is this something that is important for you to understand before writing them off. As you may already be aware the Federal Reserve has raised raised interest rates to level that we have not seen since the 70’s. This has caused mortgage rates to also increase . Current Rates are in the high 7%- 8% range. This increase in rate has not caused the home prices to correct making home ownership at this time super unaffordable. Leave it to our industry to think outside the box- Popularizing the idea of taking on someone else’s mortgage once again. Keep reading if you have a FHA or VA mortgage or are looking for more options to be able to qualify for an assumable

 

When you take on an assumable mortage you are essentially using the last owners mortgage terms and saying it’s cool , I got these payments from now on. There is paperwork of course and You must use the original lender and have enough of a downpayment to cover the gap between sales price and amount left on mortgage. The draw to these loan products is that you get to keep the low rates from previous owner. 

If you have tried to qualify for a mortgage recently you know how painful those monthly payment rates are. Interest rates are historically high right now, between 7-8 % almost tripling your monthly payments. Compared to just a few years ago, these payments are unaffordable. Buyers are looking for options to achieve homeownership. The hack that is super popular right now is to search for assumable mortgages. 

Here’s an example. 

Say the owner owes 200K on his mortgage and is selling his house for 500K you want to buy it but only have  300K from the sale of your home. 

You could go out and try to get a mortgage for the remainder 200k at 8%

or you could ask the Seller if his home was an FHA or VA mortgage and assume their loan at 2.5 -4% 

That sounds like a no brainer but what are the traps?

What kind of homes Qualify as assumable?

Here is the tricky part – Finding homes that could work for an assumable mortgage might be harder than what the internet is making it out to be.

The original loan has to be assumable- Either FHA , VA and USDA you have to qualify for it. with a VA assumable you do not have to be a veteran yourself to access this type of loan if you are assuming. 

The owner has to agree to sell their house with this assumable mortgage in place.

You have to come up with the difference of the mortgage amount still owed and the sale price.

This is only going to work for primary residence – this cannot. be done for an investment property or a home in an LLC

FOR SELLERS:

Prior to listing your home check with your Realtor to make sure they are familiar with this type of process. 

You’ll need to check with your current lender to make sure you have an FHA or a VA loan that has the assumable clause. and what the requirements are

This type of product is only available for homes that are the primary residence so check that your buyer is going to be using the home as a primary residence.

  1. VA loan entitlement can only tranfer to another veteran can allow you to go out and use that for your next house
  2. Liability for the Seller- What paperwork can you confirm that you do this ask for a release of liability
  3. The time it takes to make sure this will work as servicers are not as well versed this could take 45 to 60 days- make sure you have enough time if it takes this long. 

For Buyers:

For Buyers:

 

  1. When looking for these type of homes make sure the current loan is either a FHA or a VA loan and have reasonable expectations that not all sellers will want to agree to an assumable.
  2. Time- it can take a while to find the home as well as a longer escrow.
  3. Understand the amount you will have to have to come up with to bridge the gap

I am not a lender so make sure you check with your current lender to make sure that they understand your plan . I would still recommend you get prequalified with them so that if you do find a home that you find that wont fit into this model that you can still have options.

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