With mortgage rates continuing to hover around 7%, would-be homebuyers are becoming increasingly savvy when it comes to purchasing a house. One option that some buyers are exploring is home loan assumption, where the buyer takes over the original mortgage and interest rate upon purchase. However, it’s important to note that only loans backed by the U.S. government, such as FHA, VA, and USDA loans, are assumable.
According to U.S. News & World Report, more than 11 million homeowners in America have assumable loans. Over the past decade, approximately 25% of mortgages were assumable, with FHA loans making up 17.1% and VA loans making up 7.7% of the market. These numbers do not include USDA loans.
States with the highest share of assumable mortgages include Alaska, Wyoming, Virginia, Nevada, Oklahoma, Maryland, Georgia, Louisiana, New Mexico, and Delaware. An assumable mortgage can be appealing to buyers as it allows them to inherit the seller’s low-rate mortgage, which can be significantly lower than today’s going mortgage rate.
One additional perk of an assumable loan is that it can shorten the life of a home loan. If the original buyer has already paid off a portion of the mortgage, the new owner would only need to cover the remaining years. This can result in significant savings for the buyer.
For example, first-time homebuyers Mickey Ricard and Grace Lucchese found a property in Westford, MA, listed for $429,000. They were able to assume the seller’s mortgage with a 2.6% interest rate, saving them thousands of dollars in monthly payments compared to current market rates.
While assumable mortgages can be a great option for buyers, they can be challenging to find. To help with the search, Realtor.com recently added an „assumable loan“ search filter. It may also be beneficial to focus on areas near military bases, as they tend to have a higher share of VA loans, which are assumable.
However, there are challenges associated with getting an assumable mortgage. Lenders are not always familiar with the process, and there may be additional hurdles to navigate. Companies like Assume Loans, Roam, and AssumeList can help buyers navigate the process and find assumable homes.
It’s important to note that conventional loans are not eligible for assumption. Only FHA, USDA, and VA loans can be assumed. Each type of loan has specific requirements that the new buyer must meet in order to assume the mortgage.
In some cases, it may not be advisable to proceed with an assumable mortgage. For example, if the asking price is significantly higher than the balance of the mortgage being assumed, the buyer may need to cover the difference. Additionally, if the seller with an assumable VA loan needs their VA benefit for future purchases, it may not be feasible to assume the loan.
Overall, assumable mortgages can be a valuable option for buyers looking to save money on their home purchase. By understanding the process and potential challenges, buyers can make informed decisions when considering an assumable loan.