DALLAS — You know how they say you should never assume? Well, don't assume that that applies to everything! Assuming can save you a lot of money, especially this year since mortgage rates have shot up.
While speaking to a group of Keller Williams real estate professionals recently, Real Estate Broker Anne Lakusta of GO Management, Keller Williams shared a timely reminder about assumable loans. This is something many agents might not be thinking about and buyers and sellers may not even be aware of this. Click here to read more about assumable loans.
If a person selling a home has an assumable loan, someone buying that home may be able to assume, or take over, their loan. And that loan may have a much lower mortgage rate than current new loans, says Lakusta, “We have FHA loans by the thousands out there under 3% [mortgage rate]. I mean the lowest that I personally can recall was 2.6%. Can you imagine assuming a loan now at 2.6%?"
Lakusta explains that the catch is that with an assumable loan, the amount a new borrower might be able to "take over" is just going to be the remaining loan balance owed by the current homeowner. Obviously, that amount isn’t enough on its own to help the new buyer pay for the home outright.
Many borrowers who don’t have the cash to make up the difference would probably have to simultaneously take out a higher-interest second mortgage to cover the rest, says Lakusta. “Right now the challenge is finding suppliers of that second mortgage. Independent banks are a good source. A lot of them are stepping into that gap.”
She recommends that buyers fully explore the option with their real estate broker to see if this kind of arrangement is available, and if so, whether it is financially advantageous.
Since a buyer might save a lot of money by assuming a loan, this could significantly sweeten the deal for a buyer interested in a home where the current owner has one of these loans. In that recent talk with agents, Lakusta urged seller’s agents to be aware of whether a property for sale has an assumable loan, and if so, to use that as a selling point.
Lakusta emphasizes that in the current market, where we are seeing more price reductions, a low-rate assumable loan could help the seller hold firm on their asking price, “They should have to negotiate a little less if they're passing along a mortgage at 2.6 [percent] to the buyer.”
Buyers wondering whether they should assume a loan and cover the rest with a higher rate second mortgage or go with a traditional loan at current rates should discuss the options with their real estate agent and their lender.
Lakusta advises that buyers look at the options side by side so that they can ensure that there's nothing hidden in the numbers, “I always say I like apples to apples. Just get very, very, very specific on the cash that you're going to bring to the table to close. And then how much is your monthly payment going to be? That doesn't allow too much hiding behind the numbers.”