With rates reaching the 7% range recently, what’s old has become new. In 2022, it was all about buydowns. But in a tight inventory market, sellers may not want or feel the need to pay down a potential buyer’s rate when they have multiple offers driving up the price. However, they could be sitting on a secret weapon that could potentially garner them a higher sales price without giving anything to the buyer: their existing mortgage!
If a homeowner currently has an FHA, VA or USDA loan, they most likely have the ability to have their current mortgage that secures that home assumed by a potential buyer.
So what is an assumption and why could this be a powerful tool for them?
An assumption is when the seller’s current mortgage is transferred – or assumed – by someone else. In this case, it would be the buyer of their current home. The buyer would essentially take over the responsibility of the mortgage under the same terms and conditions, which means they get to take on the lower interest rate (and therefore payment) on the seller’s mortgage!
Here are few things to know:
The borrower will need to be program and credit qualified — meaning they will essentially go through the same process to qualify for the loan. This does not bypass loan qualification standards or requirements.
The borrower will need to have the money to make up the difference between the sales price and the outstanding loan balance – with their own funds or Key Mortgage can help with a second mortgage option.
This assumption process is completed by the seller’s current mortgage servicer, not by a lender. So flexibility in closing and approval timelines may need to be adjusted.
Using Baird & Warner Title or public records can help identify if a seller’s mortgage contains the assumption provision. Arming yourself with this information as you talk to potential sellers could be just want you need to get your seller off the fence and into the MLS! Want more information on this or other ways we can help you gain more opportunities and conversations, reach out to a Key Mortgage loan officer today.