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Assumable mortgages
Posted on 6/26/24 at 9:29 am
Posted on 6/26/24 at 9:29 am
Just started going down this rabbit hole looking at a place like With Roam...trying to understand the total pros/cons to potentially buying a house with an assumable mortgage. Most basically:
Pro
- Interest rate savings and therefore monthly payments savings can be substantial
Biggest Cons
- Obviously inventory is a lot lower looking at homes with assumable mortgages
- Seems only FHA/VA/USDA loans are assumable, so if you cant qualify for one of those loans as it stands you might be out of luck to assume one, although finding information saying a VA loan can be transferrable to non-military
- Must come up with large down payment to satisfy whatever equity the sellers have in selling the home to walk away from the home and mortgage (for example, if they have $300k in equity when selling the home with $350k left on the mortgage, you must come up with $300k cash to get them to walk from the home and leave you the remaining mortgage of $350k)
The example of 1 home I'm looking at is $740k. On the assumable mortgage the payment would be $2,149 mo (just mortgage) at 2.8% (30-yr with 26 year/10 mo left) and they would want $254k down to satisfy their equity in the home which we have between selling current home/cash. It is a VA loan though and we're not military so that could be a potential snag? But the savings is pretty nuts, if we were to buy the same home with a mortgage of our own, the payment would be $1k higher a month at 6.8% and the exact same $254k down.
Pro
- Interest rate savings and therefore monthly payments savings can be substantial
Biggest Cons
- Obviously inventory is a lot lower looking at homes with assumable mortgages
- Seems only FHA/VA/USDA loans are assumable, so if you cant qualify for one of those loans as it stands you might be out of luck to assume one, although finding information saying a VA loan can be transferrable to non-military
- Must come up with large down payment to satisfy whatever equity the sellers have in selling the home to walk away from the home and mortgage (for example, if they have $300k in equity when selling the home with $350k left on the mortgage, you must come up with $300k cash to get them to walk from the home and leave you the remaining mortgage of $350k)
The example of 1 home I'm looking at is $740k. On the assumable mortgage the payment would be $2,149 mo (just mortgage) at 2.8% (30-yr with 26 year/10 mo left) and they would want $254k down to satisfy their equity in the home which we have between selling current home/cash. It is a VA loan though and we're not military so that could be a potential snag? But the savings is pretty nuts, if we were to buy the same home with a mortgage of our own, the payment would be $1k higher a month at 6.8% and the exact same $254k down.
This post was edited on 6/26/24 at 9:30 am
5
Posted on 6/26/24 at 11:06 am to thunderbird1100
I doubt you can assume a VA loan not being VA elgible
Posted on 6/26/24 at 11:41 am to SDVTiger
VA os assumable by anyone. Problem is it ties up the veteran's VA loan entitlement. So, if they intend to finance next home w VA loan they will have less loan value available. If they don't need VA for next purchase for instance if using proceeds to fund conventional downpayment, it may acceptable to seller.
Besides coming up w lump sum to buy out equity, you are tying that $ up long term in home equity so their is missed opportunity costs vs investing it.
Besides coming up w lump sum to buy out equity, you are tying that $ up long term in home equity so their is missed opportunity costs vs investing it.
Posted on 6/26/24 at 1:25 pm to TorchtheFlyingTiger
quote:
Besides coming up w lump sum to buy out equity, you are tying that $ up long term in home equity so their is missed opportunity costs vs investing it.
Considering how high mortgage rates are I'm not as concerned about that.
I'd rather have the extra $1k/mo cash flow.
Posted on 6/26/24 at 1:57 pm to thunderbird1100
Assumable mortgages are really only feasible if the seller has very recently bought to where they don't have a lot of equity
This post was edited on 6/26/24 at 1:58 pm
Posted on 6/26/24 at 2:37 pm to LoneStar23
quote:
Assumable mortgages are really only feasible if the seller has very recently bought to where they don't have a lot of equity
I mean as long as you can cover their equity position shouldnt really matter. For a first time home buyer that would be a huge hill to climb but for someone selling a house its not a big deal.
Posted on 6/26/24 at 2:46 pm to thunderbird1100
quote:
the payment would be $1k higher a month at 6.8% and the exact same $254k down.
Does that take into account the insurance and taxes? I just worked out an almost identical scenario in La and the taxes and insurance had the note at close to $4,100.
Posted on 6/26/24 at 2:53 pm to HamCandy
quote:
Does that take into account the insurance and taxes? I just worked out an almost identical scenario in La and the taxes and insurance had the note at close to $4,100.
This is mortgage only, no escrow (tax/ins). In Georgia.
The $740k home is being offered at an assumable mortgage of 2.8% 30-year with $254k down (to cover their equity). The payment is $2,150/mo (mortgage only).
If I run this through a Mortgage Calculator at current rates of 6.8% with $254k down on same $740k home, the mortgage by itself (again no escrow) is $3,168/mo, or over $1k more a month.
Posted on 6/26/24 at 3:13 pm to thunderbird1100
Plus, the 30 yr assumable would have less than 30 years remaining so fewer total payments over lifetime of loan versus new 30 yr.
Another downside, sellers know their low rates are valuable to buyers so they are likely to ask more for the home.
Another downside, sellers know their low rates are valuable to buyers so they are likely to ask more for the home.
Posted on 6/27/24 at 6:42 am to TorchtheFlyingTiger
quote:
Another downside, sellers know their low rates are valuable to buyers so they are likely to ask more for the home.
As they should. Would be an interesting bargaining chip IMO.
Posted on 6/27/24 at 6:59 am to TorchtheFlyingTiger
quote:
sellers know their low rates are valuable to buyers so they are likely to ask more for the home.
and the others are trying to sell using 4 year old valuations with interest rates now Double what they were 4 years ago.....and they wonder why their house has been on the market for 18 months.
Posted on 6/27/24 at 8:13 am to thunderbird1100
I tried a Zillow search (in Los Angeles) for homes with an assumable mortgage and there's barely any available.
Finding one would certainly be a unicorn.
Finding one would certainly be a unicorn.
Posted on 6/27/24 at 8:28 am to TorchtheFlyingTiger
I've read that mortgage companies make these a nightmare to actually assume and it can take many months to get it pushed through. Can anyone confirm?
Posted on 6/27/24 at 12:14 pm to thunderbird1100
Can you only do assumable mortgages if it's your primary?
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