CASHING IN
ON
ASSUMABLE LOANS
Both buyers and sellers can save
$$Tens Of Thousands Of Dollars$$
by understanding and unleashing the power of assumable loans!
What is an assumable loan?
An assumable loan, also known as an assumable mortgage, is a type of home loan that allows a buyer to take over or assume the existing mortgage of the seller when purchasing a home.
In other words, the buyer steps into the shoes of the original borrower and continues making the same mortgage payments under the same terms and conditions as the seller had agreed to.
Which Loans Are Assumable?
Not all loans are assumable. Government back loans like FHA, VA and USDA loans all have assumption clauses in the mortgage note.
Conventional and other non government backed loans have a due on sale clause that prevents assumptions.
Who Wins With Assumbale Loans?
At first look it may seem like the only person to win would be the buyer.
Not so. Assuming a home loan is not the same as assuming an auto loan. The buyer does'nt just take over payments and the seller surrenders the home. The seller still sells the home at or above market value and takes the equity like a traditional sale.
In the assumption case however, it's not unusual for the seller to get more than the asking price and multiple offers on the home.
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Buyers Advantages
The buyer assuming the loan must still qualify for the loan they are assuming. The down payment usually must cover the difference from the loan balance and the sellers sales price. What if you don't have that much down? No problem. Specialized lenders will give you a smaller second loan to bridge the gap. This is a great way of financing a home when current interest rates are higher than a seller's current loan rate. Not only can it save you each month on your mortgage, it could save you hundreds of thousands over the life of the loan. In addition, it can make a big difference on where you decide to live. Homes that you thought were unaffordable, suddenly become better options. |
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Sellers Advantages
Seller's Win Too! Let's idendify what sellers get.
Remember, when your home is for sale, you have competitors. Other homes for sale in your area are competing for the same buyer pool you are. This is a game changer advantage your competition may not be able to offer the buyers. Assumable loans are like liquid gold to sellers if they understand them and use it to their advantage.
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WHO CAN ASSUME A LOAN?
FHA Assumable loans.
The loan assumption requirements FHA, Federal Housing Administration, are spelled out on the HUD. (Housing and Urben Develpment) web site for FHA loans. Click Here to view the guidelines
The loan assumption requirements for VA loans are spelled out in the VA ( Veterans Affairs) web site.
The insturctions to the current lender are contained in VA Pamphlet 26-7, Revised Chapter 5:
How to Process VA Loans and Submit them to VA . Click Here To View The Instructions
What's most surprising is almost anyone can assume the loans. You don't need to be a veteran to assume a VA loan.
Here's an example.
As a buyer, the interest rate is where the savings happen. The taxes, Insurance and any HOA dues are not affected and are calculated as normal for loan qualifications and monthly payment totals.
Traditional sale at 7.5 % interest on the loan
$ 700,000 selling price
$ 140,000 dollars down
$ 560,000 dollar loan balance
$ 3915.00 ( Principal and Interest )
Assuming 560,000 dollar loan at 3%
$ 560,000 loan assumption
$ 2,360 ( principal and interest ) Nearly $1,600 dollars per month in interest alone.
Depending on the remaining years on the assumed loan compared to a new 30 year loan, the savings are incredible.
That's the benefit of understanding the power of assumable loans.
What happens if you don't have the cash down between the sales price and the loan balance?
Specialized lenders are in place to loan you the difference in a small second loan.
This leaves the assumed loan at the very low rate, and you won't have to empty your accounts to buy the home.
Why is this not widely known to buyers and sellers?
1. Retail lenders don't tell buyers, they won't make any money. They originate loans for a living.
2. Ignorance of the Real Esate Agents. As sad as it makes me, most agents are not educated or trained on home loan matters. A select few have taken the time to increase their knowledge and increase the value to the clients. Whether buyers or sellers.
3. Seasonality. When home loan rates are low, as they were from 2015 to early 2022, who want's to assume a loan? No one really, they'll just get a new one and the rates may keep going down. Since 2022 the rates have more than doulbed, and dashing the hopes of buyer's homeownership dreams. Assuming a loan at a 50% or more discount changes the landscape for buyers using educated agents.
3. Loan Servicers. A loan servicer is the company that sends you the monthy mortgage statement. They are not necessarily the entity that owns your note. They may have full or limited authority to process the assumption.
In addition, the staffing may not be in place to process the assumption in usual time. Keep in mind, they have not needed to process assuptions for years. Now that they are back on the rise, they have to staff and train those people for what's ahead.
Just like in 2008 the short sales started. The banks were not staffed for that, and in the beginning it took an extra long time to get them processed. After they became 80 % of the homes sales back then, their process was more streamlined and took less time.
The housing market is filled with homes in for sale with assumable loans
GET INSTANT ACCESS TO HOMES FOR SALE
WITH ASSUMABLE LOANS TODAY!
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