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The big draw behind FHA and VA home assumptions is the ability of real estate buyers to obtain financing at an interest rate lower the going rate charged by lenders.
Home Destination informs Twin Cities house sellers who are often surprised to learn that a mortgage insured by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA) could be inherited. That means if the real estate seller had an FHA or VA home loan with terms including a remarkable interest rate, they may be able to assume it.
Home Sellers Are Learning About Loan Assumability
Mortgage loans from both government agencies include a little-known feature known as assumability. In other words, the buyer of a home financed with an existing F.H.A. or V.A. loan may be able to take over, or assume, the seller’s loan, under the same terms, rather than take out a new mortgage. When interest rates fluctuate on the higher side, homes listed for sale with an assumable, lower-rate mortgage may merit being marketed in a special manner to prospective buyers whom could find it advantageous. Make it know that the buyer enjoys a lower rate and avoids the settlement costs on a new mortgage.
If the home seller has a mortgage with a rate below the market rate, having the buyer assume the seller's loan can be better for both.
Home Sellers' Market Their Listing As Assumable
One very brainy possible way a Twin Cities home seller could approach drawing a stronger buyer pool, is to bring forward this point. Since it could potentially save thousands of dollars for the home buyer, the assumability factor may be the tipping point that makes the home buyer go with your Twin Cities real estate listing. "You could now have a seller saying, ‘I have a great house to sell you and a great mortgage to go with it, which is better than my neighbor, who only has a great house,’ " said Marc Israel, an executive vice president of Kensington Vanguard National Land Services and a real estate lawyer.
Additional Advantages of Selling Assumable FHA or VA Home Loans:
Home Sellers can point out that savings for the buyer assuming this type of loan surpass the pluses of a lower interest rate.
The home buyer incurs fewer settlement fees at the home closing as well; which makes assuming a low interest rate loan even cheaper. Home Destination recommends that all buyers obtain a home appraisal, even though in this case it is not mandated as in a traditional home sale. Some buyers opt out of it when not required to have one.
But when assuming a loan, borrowers do not have to pay the upfront mortgage insurance premium required on a new loan. However, assumable F.H.A. home loans still require the borrower covers costs for mortgage insurance over the life of the loan.
In some states, borrowers assuming a loan do not have to pay the hefty mortgage recording tax a second time.
Assumable Loan Buyers Must Have Creditworthiness
When selling an assumable home loan, the buyer who assumes the home mortgage must clearly demonstrate their creditworthiness in the same manner as required when applying foe any F.H.A. or V .A. loan.
The Veterans United Network Cautions That There Are Disadvantages Too:
The home seller’s entitlement is tied to the buyer for the life of the loan. The seller is dependent on possible poor decisions or financial hardships on the buyer’s part that can negatively impact the seller’s eligibility.
Should the home someday end up in foreclosure, the seller may have to pay restitution on all or a portion of the losses to reinstate their entitlement.
The same is true if the buyer who assumes the loan ends up in a short sale or bankruptcy.
Loan Holder Under Regulation To Release Selling Party
According to F.H.A. regulations, after the new borrower credit worthy shows they qualify to assume the loan, the loan holder must release the selling party from any future liability for payment of that loan. Borrowers considering loan assumption should weigh the costs against other loan options, paying attention to the principal and interest payment, the amount of cash required upfront, and the private mortgage insurance premium. “At the end of the day,” Mr. Walsh said, “if the prospective buyer can come up with the down payment and qualify for the loan assumption, then it could be a huge benefit.”
Assumable Loan Buyers Should Have Sufficient Funding
By purchasing a home assumption in this manner, savings to the new buyer are lessened if the buyer has to supplement the existing loan balance with a second mortgage at a higher rate. This may well happen if the house has appreciated over the time frame since the mortgage was taken out. The value of assumability to a buyer strapped for cash would be much lower than to a Twin Cities home buyer who has the cash to pay the difference between the home sale price and the balance of the old loan.
"Be very selective of whom you consent to assume your mortgage and do plenty of research into all other options as well so that you can make an educated decision regarding whether an assumption is worth pursuing." ~ Veterans United Network
HUD's Comments On Assumable Loans:
Qualifying home buyers can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.
"Home sellers need to be aware that VA mortgage assumptions have time constraints, adds Thuening. According to a recent article in the New York Times and HUD, VA loans that closed before March 1, 1988, may be assumed without approval from the VA or the lender. Applicants who wish to assume VA loans closed after March 1, 1988, must be approved by the Department of Veterans Affairs or its authorized agent.
We can put our clients first, making sure that when you are selling an assumable FHA or VA home loan, all of your best options are brought forward. We move the market! We love seeing each home seller pleased with their home's sale transaction. Call me at 612-396-7832 if you have questions I can help you with. We'll work hard to ensure you are prepared to sell your home and gain the best results.
Download CoreLogic's Buying A Home With Value Driven Objectives September Report
Download The Census Bureau New Residential Construction and Buying Homes Report
Jenna Thuening, a residential Realtor finds it a privilege to help Twin Cities veterans sell their homes.
11200 W. 78th St
Eden Prairie, MN 55334
Jenna's home page: homedestination.com
If I'm out in the field, you may quickly reach me by email: firstname.lastname@example.org and note how I can help you, or leave a message on my voicemail and I will return your call as quickly as possible.