Something that we haven’t dealt with in many, many years in the real estate and mortgage industry is Loan Assumptions. Homeowners who have a FHA, VA or USDA mortgage may have a loan that is assumable by another buyer. This is definitely an asset for those homeowners who are locked into an assumable loan at the low interest rates of the past, ie 4.5% and under! We are seeing more and more listings come on the market that are advertised as having an assumable loan, which can look very attractive to a buyer. There are a few important things to know about assumable loans. Bottom line: it’s not a slam dunk, easy deal.
Here's what buyers and sellers need to know about assumable loan situations:
- Just because a loan says in the mortgage documents that its an Assumable Loan doesn’t necessarily mean it can be assumed. Ha! The seller must confirm with their mortgage servicer that the loan qualifies to be assumed by a buyer.
- Be aware that closing on an assumable loan is not a fast process. The buyers and sellers need to have patience. We’ve heard it can take anywhere from 90 days up to 6 months to get an assumable loan closed.
- Buyers will have to “close the gap” with cash. Let’s say the house is being sold for $400,000 and the assumable loan balance is $280,000. The buyers would need to pay the difference between $120,000 between the sale price and the loan balance in cash at closing. We have been told by multiple lenders that there is a very, very slim chance a servicer would approve a second mortgage for a buyer. So it’s best to go into an assumable loan situation planning on paying cash for the gap
- If the assumable loan is a VA loan and the buyer is a non-VA buyer the seller could lose their VA eligibility for future home purchases.
- In a divorce situation, it may be possible for one party to assume the loan but it does involve an application process with the loan servicer.
- The loan servicer makes very little money on these deals, so there just isn’t a lot of motivation on there side to expedite the process.
If you own a home with an assumable loan or if you are thinking about purchasing a home and have more questions on assumable loans please don’t hesitate to reach out to us.
