Anxiety over mortgage costs has challenged America’s real estate market as buyers try to figure out how the Federal Reserve’s interest policy will hit their household bottom line in the short term.
Media consistently reports how many upgraders on 2% mortgage deals now face renegotiated loans demanding 6%-7%, but it doesn’t always have to be this way. Many smart buyers look for property opportunities with assumable mortgages.
What is an assumable mortgage?
It’s amazing how many folks have never heard of this type of loan. So, let me explain.
The buyer takes over the seller’s existing mortgage on the same interest rate.
There’s no going back to their own bank to be told to pay a 6-7% interest rate. Instead, you apply to the seller’s lender to take over the entirety of the mortgage – rate, balance and repayment period.
It’s a simple way to move into your next dream home without having to deal with today’s interest rate charges. Below, I spell out the deal in more detail. I hope you find it helpful. And if I can help you with your real estate needs, please let me know.
- Seller’s Rate: Given the movement of the money markets over the past couple of years, it’s possible your seller has a fixed rate deal. Some folks have five-year deals at 2-3%. Assuming that mortgage could save you thousands of dollars.
- Key Question: Ask the seller if their mortgage is “assumable.” They’ll be able to answer accurately if they look for a “due-on-sale” clause, which means the mortgage must be paid off when the property is sold. Most loans have this, unfortunately. But not all. FHA and VA loans do not have this clause.
- Permission Granted: Even if there is no “due-on-sale” clause, the lender is going to check you out. They’ll need to see whether you meet the eligibility criteria of the loan that you wish to assume.
- Rule Changes: When you apply for an assumable mortgage, the lender may modify the deal, so you just have to negotiate your way through that. If you don’t like what’s on offer, walk away and go with your alternative lender.
- Bonus Points: There are two bonuses beyond a lower rate that an assumable loan offers: faster closing and reduced closing costs. All in all, it’s worth asking the question or even tracking down sellers with assumable mortgages.