Can an assumable home loan help you sell your home?

When you are selling your home, you should use all the techniques available to market your property. Evaluate it appropriately for market conditions and get it in the best possible shape.

Plus, there’s a marketing tool that many homeowners forget they can use: an assumable home loan.

Check your new rate (Sep 17, 2021)

Government loans are assumable

If you have a FHA, VA or USDA Backed Mortgage, your buyers may be able to afford it. The biggest advantage for buyers in this rising rate environment is that they can lock in a loan at your low mortgage rate and pay less.

The biggest benefit for you is that insurability can attract buyers and give you a leg up on your competition.

Do you have an insurable home loan?

Your loan documents should indicate whether your mortgage can be taken over by your buyers. If your loan is supported by the government, it is possible under the right circumstances.

You need to be up to date on your loan payments to offer a mortgage.

Make sure you understand the terms of your loan and can explain them to your buyers. When they assume your loan, they agree to all of the loan terms, including your mortgage rate, repayment period, payment, and current principal balance.

The agency that guarantees your loan must first approve your assumption of the loan.

How an assumable home loan helps you sell

An assumable home loan is more attractive to buyers when the mortgage rate is low and sellers have little home equity.

This is because even though buyers don’t have to make a traditional down payment, they have to pay the difference between your loan balance and the purchase price of the home.

They may do so in cash at closing, or they may be able to take out a second mortgage for the balance. However, not all lenders are willing to approve a second mortgage.

Your buyers should also qualify for the hypothesis. They must submit a complete application package and documentation on income and assets.

Hypothesis: mathematics

Suppose your original loan balance was $ 200,000. If you’ve been paying it for a few years at 3.0% interest, you owe a little over $ 190.00. After four years, your balance would approach $ 180,000.

If you sell $ 220,000, there is a difference between the current loan balance and the selling price, which buyers have to cover. After two years it would be $ 30,000, and after four years it would be $ 40,000.

On the other hand, cash expenses for a repayable loan may be lower than traditional financing. Certain assumable mortgage terms allow buyers to forgo an appraisal and pay reduced closing costs.

Check your new rate (Sep 17, 2021)

Assumable mortgage rate

Your assumable home loan is particularly attractive when mortgage rates are higher. Buyers may also be attracted to the idea of ​​owning a home with an assumable loan that they can pass on to future buyers.

VA loans attract buyers because they do not require a down payment and they do not require mortgage insurance. VA loans can be assumed by buyers even if they are not veterans.

If you have a USDA loan, your buyers will need to pay an annual mortgage insurance premium of 0.35% of the loan balance. However, USDA Mortgage Insurance Rate are lower than FHA mortgage insurance, which is 0.85 percent per year. For example, on a loan balance of $ 100,000, a USDA borrower would pay $ 29.17 per month.

FHA loans are popular despite their mortgage insurance because they offer flexible underwriting guidelines.

When should you avoid selling with a guess?

There are a few caveats for sellers who want to use their assumable mortgage as a marketing tool. It is essential to make sure that you are released from any liability for the loan in order to protect your credit.

You may not get this protection if you authorize an assumption without the lender’s prior approval. Your lender must provide you with documents to legally release you from the loan. Then if buyers default, you will not be responsible for the balance.

If you have a VA loan and your buyer is not entitled to VA, your entitlement will be blocked until this loan is repaid. The advantage of the VA loan in this case remains with the mortgage, not you.

As long as you are aware of these two potential issues, selling your home with an assumable mortgage can be beneficial for you and your buyers.

What are the mortgage rates today?

Current mortgage rates are higher than they were before the November 2016 election. This is a factor that makes an assumable loan more attractive. However, today’s mortgage rates are still affordable and low. If you buy a home with no assumable loan, it will be almost as affordable today as it would have been a few months ago.

Check your new rate (Sep 17, 2021)

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