Making an Assumption in Real Estate is Never Good…Until Now

 Couple sitting on floor in empty space with plans and champagne

Making an Assumption is Never Good…Until Now



In today’s world of real estate, it’s tough paying higher prices for both homes and interest rates. We were in a low-cost interest rate environment for so long, it almost feels criminal to pay more than 7% to borrow money, but this is today’s inflationary world. What most people don’t know, is that some mortgages are completely assumable…meaning you can take over the current homeowners mortgage which includes a likely far lower interest rate. But, there are several things to consider before making this plan a reality. If you're looking for a home in Tacoma or the Pacific Northwest, it's an important option to consider.

 

Only FHA and VA loans can be assumable, because they are government backed. Conventional loans are generally not assumable because they have a due on sale clause, meaning the owner must pay the balance in full upon sale of the property. Because FHA loans are likely more common in lower priced homes, it can be one way to get a buyer into a lower interest rate product, but there is a catch.

 

Mortgage assumption allows the buyer to take on the original balance of the mortgage along with the original terms, but it doesn’t take home equity into account. Since the home has likely gained value since the original owner purchased it, the new owner will need to make up the difference between the original loan amount and the purchase price which takes the homes equity into account. For example, if the seller has a $250,000 loan balance on a home they purchased several years ago for $400,000, the new buyer will need to bring $150,000 to closing to cover the difference and compensate the owner for value growth the property has achieved. 

 

Another catch is most FHA loans have mortgage insurance tied to them, regardless of the home’s equity, so that can eat into a buyers return on investment as they look to save money by assuming the loan. But they’ll likely still end up with ample savings. Also, there’s no appraisal to be paid in this process which will save up to $1000. 

 

The buyer will still need to apply with the existing mortgage company and go through the underwriting process as though they are applying for a new loan. There are ample lenders in Seattle, Tacoma or even Gig Harbor familiar with the process, but the homeowners lender may not be local.

 

From the owners perspective, it can be a marketable tool to sell your home, especially in a softer buyers market. But know that you’ll need to contact your mortgage lender and get the process started early on loan assumption. If you are a homeowner with a VA mortgage, your VA entitlement won’t be available until the assumed loan is paid back. The exception would be if the buyer is already a VA buyer, using their own VA entitlement. 

 

If you’re considering the advantage of assuming a mortgage, please don’t hesitate to reach out and discuss this with me. Buyers are having to get more creative to afford to get into homes today and I’m here to help with that transition. 

 

Call or text (206) 643-8845 or register with me at https://erikmolzen.bhhsnw.com 

#mortgage #assumption #realestate #bhhsnw #erikmolzenrealtor #urbanelevatednw #buyerstrategies #homesforsale #tacomawa #homesforsale

Location: Tacoma, WA, USA

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