An assumable FHA, VA, or USDA mortgage would look fantastic with your marketing bundle.
When mortgage rates increase, buyers are often forced to make tough choices about the cost of a home. Higher rates and the significant rise in property values over the last few years have caused many buyers to completely exit the homebuying market.
However, one segment of the real estate market, the mortgage assumption market, has the potential to outperform the others. Some clients who are concerned about their payments may be persuaded to continue their house search by savvy realtors using their knowledge.
When the buyer assumes theĀ seller's existing mortgageĀ 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.
Deborah Baisden, CRS, GRI, a sales associate with Berkshire Hathaway Home Services in Lynnhaven, Virginia, says VA assumptions have gone up in her market. "The military makes up about 22% of our population," she continues.
When Baisden joined the firm in 1989, they wanted him to be assumed, "but it was a fairly lengthy process." Right now, they're accelerating it. In a recent deal she concluded, a veteran buyer obtained a 3.5% loan. The sale was finished in 45 days.
A significant portion of these loans, according to Craig O'Boyle, broker-owner of O'Boyle Real Estate Group in Colorado Springs, Colorado, were made or refinanced after March 2020 and have extraordinarily low interest rates and payments.
According to O'Boyle, listing agents selling these properties should continue to emphasize the traditional big three marketing factors: location, home features, and overall home condition. However, they should also emphasize the savings that buyers can obtain if they qualify for the current low-rate mortgage. The monthly difference between assuming a $300,000 loan at a 2.5% interest rate and taking out a new loan at a 6% interest rate is $614.
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.
The qualifying assumable provision in VA, FHA, and USDA mortgages allows any owner-occupant buyer to qualify using the same criteria that the loan was issued under with the existing mortgage servicer. Investors are unable to take on these loans.
VA loans are available to both veterans and non-veterans. Under veteran-to-veteran assumptions, the buyer may transfer their VA entitlement onto the loan and release the seller's entitlement for use on a later VA loan. Veterans who allow a non-veteran to take over their entitlement will keep their position until the debt is paid back, even though some will only sell to other veterans. USDA and FHA do not have such entitlement issues. Every circumstance is different. Sellers should always have experienced legal counsel to shield them from liabilities in the event that buyers default on the mortgage.
A difference between the purchase price and the assumable mortgage amount is referred to as the "assumption gap" by Assumption Solutions. Although financing that gap is technically feasible, any additional funds could affect the buyer's ability to get approval to take over the mortgage because the present mortgage servicer is qualifying buyers. For almost every file that Assumptions Solutions has worked on thus far, the shortfall has been filled with a financial down payment, O'Boyle said. Every buyer who has tried to finance the shortfall has been turned down by servicers.
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 numerousĀ subtleties of marketingĀ assumable assets.
O'Boyle asserts that "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." In addition to assisting agents, he and McAfee are also facilitating the process for servicers who are unfamiliar with it. O'Boyle stated that "they're giving consumers incorrect information in a lot of cases, and we help combat the errors."