Your marketing bundle would look great with an assumable FHA, VA, or USDA mortgage.
Buyers are frequently forced to make difficult decisions regarding the cost of house when interest rates rise. Many buyers have completely left the homebuying market as a result of higher rates and the notable increase in home values over the past few years.
The mortgage assumption market, one area of the real estate industry, has the ability to do better than the others, though. Astute realtors can use their expertise to get some clients who are worried about their payments to resume their home search.
When the buyer assumes the seller's existing mortgage at closing rather than obtaining a new loan, this is known as a mortgage assumption. As of right now, only VA, FHA, and USDA loans include a typical qualifying assumption clause.
VA assumptions have increased in her market, according to Deborah Baisden, CRS, GRI, a sales associate with Berkshire Hathaway Home Services in Lynnhaven, Virginia. "The military makes up about 22% of our population," she says.
Assumability was highly desired when Baisden first joined the company in 1989, "but it was a fairly lengthy process." They are currently speeding it up. A veteran buyer took out a 3.5% loan in a recent sale that she closed. Within 45 days, the sale was completed.
Craig O'Boyle, broker-owner of O'Boyle Real Estate Group in Colorado Springs, Colorado, believes that a large number of these loans were created or refinanced after March 2020 and have incredibly low interest rates and payments.
The traditional big three marketing factors—location, home features, and overall home condition—should still be the focus of listing agents selling these properties, but they should also highlight the savings that buyers can achieve if they are eligible to take on the current low-rate mortgage, according to O'Boyle. The difference between taking out a new loan at a 6% interest rate and assuming a $300,000 loan at a 2.5% interest rate is $614 a month.
According to O'Boyle, there is a knowledge gap on mortgage assumptions among the majority of real estate agents. Given those assumptions haven't been used since the 1980s, when interest rates averaged 12.7%, this makes sense.
Similar to Baisden's market, the Colorado Springs region is home to several military installations, including the U.S. Air Force Academy. In 2022, interest in VA assumptions began to increase. Assumable purchase contracts were arriving to the headquarters of Empire Title in Colorado Springs, where Bill McAfee is the president. However, he notes that the agent community lacked a clear understanding of how to properly finish one.
Assumption Solutions was founded by McAfee and O'Boyle, who has 27 years of experience in the industry, with the goal of assisting agents in obtaining buyers and sellers through VA mortgage assumption. According to O'Boyle, agents must to be aware of these crucial mortgage assumption facts.
Any owner-occupant buyer can qualify using the same criteria that the loan was issued under with the current mortgage servicer thanks to the qualifying assumable provision found in VA, FHA, and USDA mortgages. These loans cannot be assumed by investors.
Both veterans and non-veterans are eligible to take out VA loans. The buyer can transfer their VA entitlement onto the loan and release the seller's entitlement for use on a subsequent VA loan under veteran-to-veteran assumptions. While some will only sell to other veterans, veterans who permit a non-veteran to assume their entitlement will remain in place until the loan is repaid. There are no such entitlement difficulties with USDA or FHA. Every situation is unique. In order to protect themselves from liability in the event that purchasers default on the mortgage, sellers should always have knowledgeable legal representation.
The term "assumption gap" is used by Assumption Solutions to describe the discrepancy between the purchase price and the assumable mortgage amount. It is theoretically possible to finance that gap, but since the current mortgage servicer is qualifying buyers, any additional funding could have an impact on the buyer's ability to obtain approval to take over the mortgage. According to O'Boyle, a monetary down payment has been used to close the deficit for practically all of the files that Assumptions Solutions has handled thus far. Servicers have rejected every buyer who has attempted to finance the shortfall.
The veteran bidder brought $25,000 in cash to the closing of Baisden's deal. Baisden warns buyers that future value is never guaranteed when they bring a sizable sum of money to closing. "If sellers are realistic and bought before the big runup, we'll see some growth in assumptions," she adds. "Whenever someone brings cash, I always warn them that there's no assurance they'll get their money back when we sell."
Assumption Solutions is providing agents nationwide with webinars, podcasts, and local training to assist real estate professionals in comprehending the numerous subtleties of marketing assumable assets.
According to O'Boyle, "the demand for assumptions is growing exponentially." "Although we currently process deals from Alaska to Florida, the majority of our activity is in the Colorado Springs area." Not only are he and McAfee helping agents, but they are also making things easier for servicers who aren't familiar with the procedure. According to O'Boyle, "they're giving consumers incorrect information in a lot of cases, and we help combat the errors."