The Central Texas real estate market has been rocky for both buyers and sellers. Interest rates and home prices have increased, and inventory is at an all-time low, leading to a slowdown in the housing market.
With all that being said, there are still opportunities to purchase a home with a low interest rate. This is made possible by assumable mortgages.
What Is An Assumable Mortgage?
Assumable mortgages allow a buyer to take on the current owner’s mortgage loan by transferring it from the seller to the buyer. The mortgage loan includes the interest rate, repayment term, current principal balance, and any other terms of the existing mortgage. Many conventional loans are not assumable, but there are a large number of VA, FHA, and USDA mortgage loans that are assumable under specific requirements.
While this is a huge benefit for buyers, it can help sellers, too. In a higher interest rate market, it increases your buyer pool and is a big marketing tool to include in your listing.
How Do You Qualify?
Assumable VA Loans: Veterans Affairs only offers VA loans to qualified military members and spouses. This does not mean you need to be a current military member to qualify, but the lender and VA office will still need to approve the buyer for the loan assumption.
Assumable FHA Loans: As long as both the seller and the buyer meet FHA requirements, the FHA loan is assumable.
Assumable USDA Loans: The buyer must meet the requirements of the USDA, including creditworthiness and income, plus they have to get approval from the USDA to transfer ownership.
Pros and Cons
As mentioned, one of the biggest pros of assumable loans is that they allow buyers to obtain low interest rates. In addition, when equity is low, the out-of-pocket loan costs tend to be low. On the flip side, when equity is high, it may require the buyer to have a substantial down payment. Also, some lenders may opt not to work with another lender if a second mortgage is required on the property.
If you have any questions regarding assumable loans, reach out to us! We would love to answer any questions you may have!