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Assumable Mortgages And How They Can Help Buyers And Sellers In Todays Housing Market
Dated: January 16 2023
Assumable Mortgages: What Are They And How Can They Help Buyers and Sellers In Today’s Real Estate Market
With high mortgage rates on the minds of many home buyers right now and a slowing real estate market for sellers, we want to share how an assumable mortgage can give sellers an upper hand in today’s real estate market. Keep reading below to find out what an assumable mortgage is and how it can help you sell your home for top dollar.
What is an Assumable Mortgage?
An assumable mortgage is a home loan that can be transferred from the original borrower to the new homeowner. When a buyer assumes a seller’s mortgage loan, the interest rate and payment stay the same for the loan. This means that if a 30-year old, assumable mortgage is 5 years old, the new homeowner will have 25 years left to pay off the loan. Basically, the name on the existing mortgage changes, but everything else stays the same.
What Types of Mortgages are Assumable?
While conventional mortgage loans are not assumable, government backed loans, such as FHA and VA, loans are generally assumable.
For VA Loans, the new buyer of the home does not have to meet any military service requirement to qualify to assume the loan, but they do have to meet the loan servicer’s financial requirements.
*NOTE: If a non-veteran or someone who doesn’t meet the military service requirements assumes the loan, the original borrower will not be able to get another VA loan until the original loan is paid off. If the loan is assumed by a borrower that would normally qualify for a VA loan, then the original borrower should have no problem getting another VA loan on their next home purchase.
For FHA loans, anyone who can financially qualify for the loan with the loan servicer should be able to assume the loan.
How to Assume a Mortgage
Similar to applying for a new mortgage, the home buyer assuming the loan must get approved by the loan servicer that holds the existing mortgage loan (just as they would if they were applying for a new loan). The loan servicer will likely want to pull the buyer’s credit report, verify their employment and income, and check over their finances to approve them for the assumption.
Once approved, the loan servicer will prepare a mortgage assumption package for the buyer to sign at closing.
Furthermore, when a buyer assumes the loan at the closing, the seller is released from all liability that comes with the debt of that mortgage loan, meaning there’s no risk to the seller to sell a home this way. As soon as the closing occurs, the seller is released from the debt.
Advantages of Assumable Loans for Buyers
For buyers, finding a home with an assumable loan means they might be able to get a mortgage rate that's much lower than today's mortgage rates. There may also be a cost savings on loan fees and appraisal fees, as lenders don’t often require an appraisal during a loan assumption transaction. While the loan servicer will charge some fees to complete the assumption, it's often less than a borrower would pay for a new mortgage.
The main downside of assuming a seller’s loan is that the buyer may have to put down a larger down payment on the home to cover the difference between the purchase price and the remaining amount of the assumable loan balance.
Advantages of Assumable Loans for Sellers
When selling a home in today’s real estate market, sellers with assumable mortgage loans have a clear advantage compared to other sellers if their loans have one of the ultra-low mortgage rates that were offered from 2019 through the middle of 2022. Offering a low, fixed-rate, assumable mortgage when listing a home for sale will absolutely make it stand out to buyers.
Homeowners who are thinking of selling in 2023 should absolutely consider the desirability of offering an assumable mortgage to buyers if they financed their home with a VA or FHA loan at a rate that’s more competitive than today’s mortgage rates.
Need more advice on buying or selling real estate in Tampa Bay? Call us at (727) 400-3315 or message us directly, by CLICKING HERE.
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Andrea is the Managing Partner of The Sandy Hartmann Group and runs the team alongside Sandy Hartmann. She would love to talk to you about real estate! Andrea was born and raised in the Tampa Bay a....
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