This past year, the housing market has experienced a perfect storm, with high interest rates and inflation resulting in reduced purchasing power for homebuyers. In addition, many current homeowners were reluctant to sell — and give up their lower mortgage rates — leading to lower housing inventory and higher home prices.
If you have been struggling to buy a home in the current market, one possible solution is to look for a home with an assumable mortgage. If you’re thinking of selling your current home, having an assumable mortgage can make it more marketable and appealing to buyers.
When a mortgage is assumable, a buyer can take over the seller’s existing mortgage and continue making payments on the original terms. This includes the interest rate, payment schedule, and remaining loan balance. In the current market, a buyer may be able to assume a mortgage with a more favorable interest rate than what they would be able to get when applying for a new home loan. To assume a mortgage, the homebuyer must meet the original lender’s qualification requirements and pay closing costs.
One major drawback of an assumable mortgage is that the homebuyer must come up with a down payment that will make up any difference between the sale price and the outstanding balance on the original mortgage loan. This means that the homebuyer must either pay cash or take out a second mortgage to cover the remainder of the purchase price. For example, if a home is selling for $500,000, and the seller still owes $300,000 on the mortgage loan, the down payment would be $200,000. If the original loan has a low enough interest rate, an assumable mortgage could be advantageous for a homebuyer with access to enough cash or financing to cover the difference between the sale price and outstanding balance of the assumed loan.
It’s important to note that not all mortgage loans are assumable. As a result, finding a home with an assumable mortgage may be difficult, and if you do find one, competition may be fierce. Generally, assumable mortgages are limited to government-backed loans from the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA). Unique terms, requirements, and fees may apply.
Link to Printable PDF: 2024 03 March Newsletter
IMPORTANT DISCLOSURES
ERB FINANCIAL offers Securities and Investment Advisory Services through Ashton Thomas Securities, LLC, member FINRA/SIPC,200 Canal View Blvd Rochester NY 14623 585-424-1234
Locally owned and operated since 1953
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
This communication is strictly intended for individuals residing in the state(s) of NY. No offers may be made or accepted from any resident outside the specific states referenced.
Prepared by Broadridge Advisor Solutions Copyright 2024.
