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The crisp fall weather isn’t the only thing cooling off in Southern California. Home sales fell slightly in October compared to September 2023. But the median sale price also declined a little bit. In fact, according to a Rocket Homes market report, almost 2/3 of all Riverside County homes sold in October sold for at or below the list price. And with interest rates still high, buyers and sellers both are looking for ways to make a deal. One of those ways is with an assumable mortgage.
Assumable Mortgage 101
What is It?
Basically, an assumable mortgage allows a qualified buyer to take over the seller’s current mortgage to become the new owner of a property. As of the writing of this post, a 30-year fixed-rate mortgage sits at 7.5%. Let’s say a seller bought their home for $400,000 with 10 down three years ago and secured a 3.11% interest rate. They pay approximately $1540 per month for their mortgage and interest. If they purchased that same home today for the exact same amount, their payment costs almost $1000 more per month. So you can see where an assumable mortgage may sound like music to a buyer’s ears, right
How Does It Work?
First, the seller’s lender needs to be contacted no matter what type of loan is involved. If you make an informal arrangement with the seller without involving the lender, the lender may come back and demand immediate payment in full of the mortgage note. That could leave you struggling to find financing to come up with that money.
Next, you sit down with the lender to go over your financial information and creditworthiness. Just like if you bought a home through the traditional way, you must provide proof of income, a listing of your debts, documentation of all assets, proof of employment, etc. The lender then runs your credit. Then they review all of this information to see whether or not you are approved to assume the mortgage. Once approved, the lender releases the seller from any financial responsibility and places it on the buyer’s head.
Lenders do not require an appraisal for these types of mortgages. That eliminates one stumbling block a traditional buyer faces. However, buyers should still obtain a home inspection while in escrow. This gives you a better picture of what you are walking into.
Not All Mortgages Qualify
Unfortunately, not every mortgage is assumable. Typically, FHA, VA, and USDA loans allow for a buyer to assume the mortgage as long as certain criteria are met. For FHA and VA loans, this may mean getting approval from the lender first. On the other hand, most conventional loans are not assumable. Your agent should be able to find out what type of mortgage is involved in the sale. Plus, you should always talk to your lender about terms before you sign any paperwork.
While an assumable mortgage sounds fantastic for buyers, they do not work for everyone. And they may prove slightly harder to qualify for than a traditional mortgage. However, they also may save you thousands of dollars a year if approved. Talk this over with your REALTOR® as well as your lender to see if this is an option you wish to pursue.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
