Friday, June 9, 2023

Assumable Loans and Pricing

I haven't heard this much chatter on assumable loans in my whole 24 year career :) But people sitting on an FHA or VA loan under 4% have an opportunity to sell their home at a bit of a premium. A $300,000 mortgage at 7.5% is about $2100 a month whereas the same loan at 4% is about $1500. That's a $600 savings per month. A buyer can overpay $10-$20,000 and still qualify if they are assuming a low interest note where they may not qualify at the higher rate.

I have a listing right now with a nice low interest FHA assumable loan on it. The problem however for assuming the loan is that it has a very low balance, well under $100k so most buyers will not have enough downpayment to make up the difference. But people sitting on a home they bought more recently say two years ago when rates were low, have a golden opportunity to cash in big now.

Generally FHA, USDA, and VA loans are assumable. Typically conventional loans are not. So a potential seller sitting on an assumable mortgage with a low rate under 4% might want to make a move up but is offset by the higher rates we have now. But if the loan they have is at 90% LTV or higher there is a good chance they can get an extra 10-20k over the value by finding a buyer interested in assuming their loan. That extra cash can be used to buy down the rate on their new loan for the next house. This is a good strategy but it should be noted that there is a limit to how much investors will let a borrower "buy down" on the rate. If they are a strong borrower with solid reserves and a high credit score maybe they get a rate at 6.50% and buy it down to 5.875%. 

Potential sellers should reach out to their favorite mortgage professional and discuss options like this to see if their scenario fits the model. It could be a great opportunity for both eh seller and the future buyer of their property.

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