Sometimes it looks like the national real estate market and the high-interest mortgage rates are nothing but lemons. But one startup company has found a way to turn the lemons into lemonade.
Assumable mortgages are something that was not uncommon back in the more civilized real estate era. Many conventional mortgages had an assumable clause built into the mortgage, giving lenders another source of potential borrowers. Those days are long gone except for government mortgages, including VA and FHA loans, which usually still contain an assumable clause.
What is an assumable mortgage? An assumable mortgage allows sellers to transfer their mortgage loan to the buyer purchasing their home. An assumable transaction doesn’t replace an old mortgage with a new one, but instead transfers the old mortgage to the new owner. The seller is relieved of the remaining mortgage liability and the balance of the outstanding loan is subtracted from the purchase price. The buyer, of course, must come up with cash to cover the balance of the purchase price.
Roam is the name of a new real estate startup launched several weeks ago in a handful of states, including Florida, who – for a fee – will search out properties with assumable mortgages. They will handle the paperwork and work through the system and the seller’s mortgage company on behalf of both buyer and seller to facilitate the mortgage transfer and property sale. Roam’s goal is to attract lenders and investors who can place new loans for the balance of the selling price, possibly at higher rates to compensate them for holding the assumable mortgage at lower rates. It’s not for a novice but, if successful, could open more available properties for buyers.
There are always good and bad points to anything new to the marketplace. If something looks too good to be true, it may be. Some of the pros for purchasing an assumable mortgage are lower interest rates, an obvious benefit for the buyer. Having an assumable mortgage gives significantly more exposure to a seller’s property. Closing costs will be lower and no appraisal is necessary, saving more money, and the buyer is assuming less debt.
The negative side of an assumable mortgage is a larger down payment, which is fine if a buyer has a lot of home equity or cash. Buyers still need to meet the lender’s credit and income requirements, and the buyer does not have a choice of lender.
Buyers who are assuming a VA-backed mortgage won’t be entitled to another VA loan until the assumed loan is paid off. Therefore, if you are getting VA benefits you may need to wait a while to qualify for another loan.
You may also be required to carry mortgage insurance depending on the amount of loan assumed and the loan-to-value ratio.
As I pointed out, this is a balancing act and not for everyone. Assumable mortgages could work great if you’re buying from a family member. If you don’t want a federal loan and are more comfortable with a conventional mortgage, it won’t work. Sellers with an assumable mortgage who may be having a problem selling their property could benefit by using it to make their home more desirable and advantageous to buyers.
Lemons or lemonade, the yin and yang of the real estate market. Just one more thing to add to the confusion.
