Assumable Mortgages How To Get a Low Rate
The 2023 mortgage rates are almost double the rates of 2021, and this is only part of it. Home financing costs have gone up while housing inventory is still short. What can potential home buyers do in the current market?
Those in the industry say to try assumable mortgages. This is where a buyer takes over the seller’s current mortgage with the same rates and terms. This might mean you will get a lower rate as 85% of mortgages out there and have an interest rate below 5%. This incentive could make it easier for a seller to sell their home. Before you decide to go this route, you need to understand the ins and outs of assumable mortgages.
How do assemble mortgages work?
A buyer will take over the seller’s mortgage and the buyer will keep the same interest rate, payment schedule and the loan balance as the seller’s current mortgage. In order to do this, a buyer will still have to meet the lender’s qualifications which means a buyer will still have to apply the way they would for a standard mortgage.
Unfortunately, not all types of mortgages are assumable. Government-backed loans that are conventional are typically the kind that can be assumable. These loans include FHA loans, VA loans and USDA loans. According to Mortgage Bankers Association’s Weekly Applications Survey around 18% to 26% of residential loan applications are government backed loans.
Pros and cons of assuming a mortgage
As mentioned before, this can be good for a buyer who wants to get a lower rate than what is currently available. A seller will also have more potential buyers that will be interested in their home. “It’s something that differentiates you from the marketplace,” says Ted Tozer, of the Urban Institute’s Housing Finance Policy Center. In a nutshell, they have a potentially lower mortgage rate, can have lower fees and it is easier to find a buyer.
The biggest downside of an assumable mortgage is the down payment. Tozer says that the down payment on an assumable mortgage is 15% or more. Government-backed loans typically have a down payment from 3.5% to zero. So basically the cons are that you may need a second mortgage with its own upfront fees, and may require a bigger down payment.
Whether you go with an assumable loan or a regular conventional loan there are both pros and cons to both. If you are trying to avoid the rising interest rates, then trying to get into an assumable loan might be the best way to go. Talk to your local real estate agent who can help you with the ends and outs of mortgages.
