Assumable loans back

Highlights:

  • Guest column by Dan Polimino.
  • Assumable loans return.
  • As rates rise, they will be golden.

By Dan Polimino

Special to InsideRealEstateNews.com

Dan Polimino

Dan Polimino

I am amazed that I have a mortgage with less of an interest rate than what my parents paid for our home in 1968.

What really blew me away was when my lender told me that my loan was assumable. I thought assumable loans were a thing of the past, but FHA loans are assumable, and now some conventional loans are as well.

The assumable loan was almost a must for homebuyers in the late 1970’s and early 1980’s when interest rates climbed to 16 percent and higher. When a seller had an assumable loan, they definitely had an advantage over a seller that did not. For those of you who are not in the real estate market, here is how an assumable loan worked.

Let’s say an individual selling their home had an assumable loan and is asking for $390,000. The buyer interested in that home may agree on the purchase price and assume the seller’s loan. The seller’s balance on the loan is $300,000 so the buyer assumes the balance at the seller’s rate (say 3.5 percent) and then brings the $90,000 cash to closing to make up the difference.

Back in the 80s, some of these assumable loans did not even require the buyer to qualify. Some also had a provision that they could raise the interest rate. They are not that way now, so be sure to check with your lender on the terms. Most of the assumable loans will also require the buyer to pay a transfer fee (perhaps $350 or more).

If you are purchasing a home or refinancing your home, I think every homeowner should look up the option of getting an assumable loan.

Let’s face it: interest rates have nowhere to go but up. God forbid the interest rates get to 8, 9 or 10 percent but if they do, a homeowner selling their home with a low assumable interest rate is in the driver’s seat. It’s safe to say that a buyer would pay a premium for a home with a low and assumable interest rate. This could easily add thousands of dollars in value to someone selling their home.

 Dan Polimino is a brokeroOwner with the Colorado Dream House Team, Keller Williams Realty DTC. Contact Dan at  dan@coloradodreamhouse.com, codreamhouse.com or coloradodreamhouse.com

Have a story idea or real estate tip? Contact John Rebchook at  JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

 

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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Comments

  1. ‘Back in the 80s, some of these assumable loans did not even require the buyer to qualify.’

    True, but the non qualifying assembles left the old mortgagee on the hook for any subsequent default. This also lead to the common practice of “equity skimming” that ran ramped in the 80s. In all, Dan does give some good insight. When you model in future higher rates a willing buyer in the future, any additional mortgage insurance paid on an FHA loan when compared to a conforming <80% LTV(w/PMI) might be worth considering. Using a net present value calculation a FHA loan might be worth $30k+ to a buyer under ideal circumstances.

  2. We refinanced a couple years ago at 2.875 percent. I don’t suppose that was an assumable loan. They would have told us at closing, right?

      • Look on your note for a due on sale clause. Even if you have a DOSC, theoretically, you could do a ‘wrap around’ mortgage an attorney could setup. You would still be on the hook for the loan, but with the right quality buyer and a big enough spread between future rates and your 2.875%, the additional money a seller would pay you for the loan would be worth it.

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