Is Your Seller’s Mortgage Assumable?
FHA, VA and USDA loans may be assumable, along with a few conventional loans. If so, buyers who can pay off equity might qualify for a lower interest rate.
HILLSBORO, Ore. – With today’s current interest rates, homebuyers may want to seek out homes for sale that have assumable mortgages. When rates were below 3% earlier this year, some people were delaying buying, waiting to see if house prices would lower. They didn’t fall much, yet interest rates went up substantially, potentially pricing people out of the market.
Finding a home for sale that has an assumable mortgage may be the solution.
Assumable mortgages were popular when rates were higher, some didn’t even require buyers to qualify. Not the same today: Buyers must now qualify through the seller’s lender that has the mortgage on the house.
An assumption allows a buyer to take on the original loan balance, payment and term, taking advantage of the seller’s lower interest rate, which they may have gotten years ago. Assumptions are allowed on FHA, VA, and USDA loans and, in some exceptions, conventional if the mortgage contract has no “due on sale” clause or if the lienholder permits it.
The down payment could be higher as the seller’s equity must be made up, which is the difference between the price of the home minus the loan balance. If the buyer can take over a smaller loan balance at a much lower interest rate, it may be worth it.
Sellers should make sure the assumption is Novation only, where the lender transfers full liability from the seller directly to the buyer, releasing the seller from future responsibility for the mortgage payments.
Copyright © 2022 Forest Grove News Times, all rights reserved. Robert Groves is senior mortgage broker for Minuteman Mortgage.