Current homeowners are very well aware that mortgages today aren’t as cheap as they were a few years ago. Well, it’s not looking like 1985 people are still looking for alternatives. This has led to buzz lately about assumable mortgages, don’t we all wish we could take our 3% rate and pass it on to a new buyer if only it were that easy. Sadly, it doesn’t work that way. The truth about assumable mortgages is that they just aren’t feasible in most cases. First, what are they?
An assumable mortgage is one that can be transferred from one borrower to the next. In other words, it allows a home buyer to take on the home seller’s existing mortgage while all the terms would transfer, the point of doing one is to get the lower rate when it is substantially below the current market rate.
So, should you be looking into this?
Most likely, no, very few loans are assumable.
Government-backed loans including FHA, VA, and USDA qualify. But even those have restrictions. Most conventional loans are not assumable. The only exception is adjustable-rate mortgages backed by Fanny and Freddy, but those wouldn’t have terms that would be desirable right now. So, they’re really not worth talking about. 70% to 80% of loans in the US would not qualify, if you do have an FHA or VA loan.
There are also other hurdles to passing it on. The new borrower needs to go through underwriting and the property must be owner-occupied with no investors. Since they go through underwriting like regular loans, this is not a way around credit or employment issues either that your potential buyer might be facing.
Let’s say you are a buyer who’s come across a property with a loan that can be assumed and you qualify for that type of loan. Also, keep in mind that the loan balance is most likely much less than 80% of the purchase price today. So, you’re gonna need a second loan and/or a pretty hefty down payment.
If you have an FHA or VA loan on your property, this could be something worth looking into. It would require the buyer passing eligibility requirements as well as lender approval. We can help you find out if you have an assumable loan and if you are a seller that has one, this is a tool you should consider offering to potential buyers as it could help bring together a pretty amazing deal.