What is an assumable mortgage?
Assumable mortgages allow you to take over the existing loan on a home, maintaining its terms and most importantly its interest rate. Almost all FHA, VA, and USDA loans are assumable. An important aspect of assumable mortgages many people are not aware of is that VA assumable home loans are assumable by anyone – being a veteran is not required. This presents a unique opportunity for savvy sellers and buyers.
The primary reason you’re looking for Assumable mortgages and why they are gaining so much popularity in 2024 is because you stand to save thousands a month and hundreds of thousands of dollars in interest.
For a $426,000 mortgage at today’s interest rates your monthly payment would be over $3,000 a month and interest paid would be $662,000.
But if you can find an assumable mortgage home at 3% – your payment is only $1,796 and you only pay $220,000 in interest.
So you’re aware of the huge savings potential – but are unsure what an assumable mortgage even is or how it works. Don’t worry – Advantage Assumptions has your back:
What is an Assumable Mortgage?
Assumable mortgages let a buyer to take over the existing home loan on a property. This allows the buyer to keep the term, monthly payment, and most importantly maintain the existing interest rate.
Top Reasons For Assumable Mortgages
- Historically Low interest rates: The #1 reason why people want to assume an existing mortgage is to access historically low rates below 4.5%. Over 10 million homes exist with assumable mortgages at these rates and can help save you thousands a month in payments and hundreds of thousands of dollars in interest over the live of the loan.
2. Reduced Closing Costs: There are fewer closing costs involved with assumable mortgages. This means huge savings for the buyer and is also valuable to the seller for a quicker transaction.
3. Sellers Can Fetch a Higher Price: A less talked about advantage of an assumable mortgage is the advantage the seller has. In a competitive, uncertain market utilizing your homes assumable loan is a strong marketing strategy that can help your property stand out and get a higher price. Advantage Assumptions can be a powerful marketing tool for your home and your agent.
4. Potentially Hundreds of Thousands in Savings: The main reason people use Advantage Assumptions to find their homes is because they do the math. At current rates a $400,000 home will cost you $656,621 in interest over the life of the loan, and nearly $3,000 a month. If you instead assume the existing mortgage your payments are potentially 50% less and the total interest you pay over the life of the loan is potentially as low as $154,000, depending on the remaining balance and interest rate.
Challenges of Assumable Mortgages
Assumable mortgages are not easy – plain and simple. There are vital steps and requirements that must be met to achieve a successful assumption. Advantage Assumptions specializes in simplifying the assumable transaction for all parties to ensure a successful assumption that closes on time. The other primary challenges with Assumable mortgages are:
The Home Equity Gap
The biggest challenge for most with assumable mortgages is coming up with the cash for the equity position in the home they want to assume ownership of. For cash buyers, this is not an issue. But for many buyers who lack the cash to cover such a large gap, it can be a challenge to get a loan for their purchase. If the buyer has to take out a loan this complicates things, and not all lenders will like this.
However, Advantage Assumptions has created a platform where buyers, sellers, lenders, agents, and other partners have come together to make the assumable mortgage process a reality for buyers and sellers.
Liability Release & Paperwork
Sellers have to ensure they are released from liability when they release their assumable mortgage to the new owner. Without proper guidance from an assumable mortgage expert, the seller could be on the hook for the mortgage if the new buyer defaults. It’s vital that sellers utilize trusted assumable experts to simplify their transaction and ensure everything is handled right.
FHA Assumable Loans
If you’re considering taking over an FHA loan, it’s important to be aware of specific requirements for an assumable mortgage. Newer FHA loans require that both the buyer and seller meet certain criteria. Sellers must have lived in the home as their primary residence for a specified period, and buyers must undergo the standard application process for an FHA loan. You must meet the requirements of the lender in order to assume the existing mortgage.
Advantage Assumptions can help you with your FHA mortgage assumption – when you’re ready contact us.
VA Assumable Loans
VA loans are available to eligible military members, service members, and their spouses. Non-qualified individuals can apply for a VA loan assumption, but it’s essential to note that if assumed by someone not typically eligible, the seller forfeits their VA entitlement, and the entitlement stays with the assumable VA loan.
Depending on the loan setup, lender approval and, in some cases, approval from the Regional VA Loan Center may be necessary, extending the processing time. Using Advantage Assumptions’ team of experts can ensure you don’t run into any problems.
How Does an Assumable Mortgage Work?
An assumable mortgage operates similarly to a traditional home loan, but the buyer is restricted to financing through the seller’s lender. Approval from the lender is necessary to avoid potential risks for the seller, such as having to pay the full remaining balance upfront or facing negative impacts on their credit if the buyer missed payments.
A notable advantage is that no appraisal is required, potentially saving buyers hundreds of dollars. However, buyers should still conduct a home inspection for repair issues. Once the buyer closes on the home, the seller is relieved of mortgage payment responsibility.
The assumable mortgage process is opaque and has many challenges. Our network of agents and team of Assumable Experts can ensure a smooth, stress free assumption for buyers and sellers. You must do your due diligence when pursuing an assumable mortgage to ensure you undersand all the risks and benefits.
How Much Does an Assumable Mortgage Cost?
Costs of Assumable mortgages vary from lender to lender. You must contact the lender to understand all associated costs. For VA loan assumptions you should be aware that assumers usually pay 0.5% funding fee, unless exempt.
Ready To Browse Assumable Listings and Begin Your Assumable Journey?
As you embark on the exciting journey of exploring assumable listings, you’re opening doors to unique opportunities in the real estate market. Whether you’re drawn to the potential savings, simplified processes, or the chance to step into homes with fascinating histories, assumable mortgages offer a distinctive path to homeownership. Now that you’re armed with knowledge about FHA, VA, and USDA assumable loans, you’re well-prepared to navigate this terrain.
