Assumable Mortgages - Two Ways They Are Aiding The Real Estate Market Recovery
I received a note from a reader regarding assumable mortgages, and it asked me to help "get the word out" about one of the old solutions to a major problem in the real estate market today.
The number of homebuyers in the market today is far fewer than we have come to expect based upon home sales trends for the past 23 years (the time I have been in the business).
Our local population is about 30% larger than when I started selling real estate in Tallahassee, yet the number of homes selling each day (today) has only returned to what we saw in the early 1990s. That suggests that either people want to make a move less frequently than they did in the past, or that people are not as capable of moving as they were prior to the housing bubble.
As long-time readers of the Tallahassee Real Estate Blog can attest, we believe it is the latter, rather than the former.
Fortunately, buying a home with an assumable mortgage is a creative solution for some of the people who want to move today, and it very well could be the most sought after solution for all homebuyers in the coming years.
Assumable Mortgages Abound
I received the following note from Scott Celley at Zumption.com, regarding their work with assumable mortgages:
One thing that Tallahassee has going for it in terms of affordability is a large number of homes with these type of loans. Nationwide 9 million homes are assumable (FHA and VA backed), or 1 out of every 6 mortgages. In Tallahassee with the popularity of FHA loans, it's closer to 1 out of 4 that are assumable. (Article posted on Google+)
How Buyers Benefit From Assumable Mortgages
First of all, there is nothing new about mortgages that offer the right of assumption to a qualified buyer. In fact, when I got into the business, they had just started phasing out the Non-Qualifying Assumable Mortgages that had wreaked so much havoc in the late 1980s.
Today's assumable mortgage requires the borrower to qualify before the mortgage can be transferred, so the default rate on these will likely be no worse (and probably better) than any new loan originated today. But homebuyers who find homes that have existing mortgages insured by the Federal Housing Administration (FHA) and those guaranteed by the Veteran's Administration (VA) might want to consider an assumption as part of the purchase for several reasons:
- The loan to value might be better than what the buyer can obtain from a lender today
- The interest rate might be better than what the buyer can obtain from a lender today
- Closing costs might be lower than what the buyer will pay for a new loan
- The term of the loan will be shorter than getting a new 30 year loan
- Added value when you sell
How Sellers Benefit From Assumable Mortgages
Homebuyers aren't the only ones who can benefit from an assumable mortgage.
The value of a home is the combination of all the benefits a buyer receives when they own your home. So sticks, bricks, land, labor, etc., are all part of the value, but so too can be an assumable mortgage.
When it comes time to sell your home, you might have a mortgage on your property that is more desirable than some (or even all) buyers can get from a mortgage lender.
Imagine if you obtain a new mortgage today at 4.25% (which comes with assumption rights) and interest rates rise to 8% by the time you want to sell your home. Future buyers can assume your home's mortgage at 4.25% rather than borrow "new" money at 8%. Doesn't that add value to your home?
Assumable Mortgages In Tallahassee
Assumable mortgages have been around for ages, and they should definitely be considered when it comes time to sell your home (as part of your marketing plan) and when you buy your next home.
Due to the decline in home values over the past 7 years, there are some homes for sale in Tallahassee with assumable mortgages that can be very attractive to buyers with little capital. If you would like to know more about buying a home with an assumable mortgage, just drop me a note and we can schedule a time to show you how it is done.
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