What Are Assumable Mortgages - Are They Making A Comeback?
In our ever-changing real estate market, knowing and understanding your options when buying a home is important. Higher interest rates and low inventory are making it difficult for buyers to find and afford a home, which is why assumable mortgages might be an option.
Let’s dive into assumable mortgages, their advantages and disadvantages, and why they’ve become more prevalent in today’s challenging market.
What is an Assumable Mortgage?
Much like the name states, an assumable mortgage is a mortgage that allows a buyer to assume, or take on, the current owner of the home’s mortgage loan. This would include their interest rate, principal balance, repayment terms, and any other mortgage terms. By assuming the mortgage, the buyer is purchasing the home at a lower interest rate, making it more affordable for them.
Advantages and Disadvantages of Assumable Mortgages
While you can see the advantages of assumable mortgages for buyers, they also benefit sellers. Here are a few advantages and disadvantages for buyers and sellers.
Advantages
Buyers: Below-market interest rates, potentially lower down payments (depending on home equity), generally lower closing costs
Sellers: Can be used as a marketing tool, increased buyer pool, faster home sale
Disadvantages
Buyers: Limited selection of homes available (not all homes/mortgages qualify), may need higher down payment if equity is high, limited negotiating power
Sellers: Increased liability (the seller is responsible for the debt if the mortgage is assumed)
Why Are They So Popular Now?
With today’s market constantly changing, buyers and sellers are continually looking for ways to stand out and get the best deals. Many mortgages are assumable, including FHA, VA, and USDA loans, as long as certain conditions are satisfied. Most conventional loans are not assumable because they include a due-on-sale clause where the lender can demand the remaining balance once the property is sold.
If you’re interested in assuming a loan, loan assumption is 45-90 days, so you’ll want to begin the process as soon as possible.