A recent social media post from a North Texas real estate agent got the attention of our NBC 5 Responds team. A new home buyer closed on a house just before the new year, financing it with an interest rate of three percent.
Average 30-year fixed rates are around seven percent on Monday. Read on for how the buyers did it.
FIRST TIME HOME BUYER SEARCH
When Sara and Terry Diamond set out to buy their first home, they were looking for more space for their family.
“Bigger kitchen, bigger lot,” said Sara Diamond.
They settled on a house in Sanger with a big yard for their kids and financed it with an interest rate of 3.125 percent.
“Anyone I’ve told, close work friends that work next to me and stuff like that, they think I’m lying to them,” said Terry Diamond.
He said, he tells them, “Assumable loan.”
In basic terms, an assumable mortgage means a qualified buyer finances through the seller’s lender and takes over the terms – including the interest rate, payment schedule and loan balance.
Some may think of assumable loans as relic of the 1980s and periods of double-digit interest rates.
The Diamond’s real estate agent, Chasatee Carbaugh, said houses with potentially assumable mortgages get lots of interest in the current market.
“It was a huge selling point,” said Carbaugh. “The reason they chose this home.”
As with any major financial decision, Carbaugh explains there is a list of trade-offs to consider. The buyer would expect to make a bigger down payment. For example, if someone is buying a house for $400,000 and taking over the seller’s assumable mortgage with a $300,000 balance, the buyer would need to cover the $100,000 difference. Carbaugh said it may be doable for buyers who are coming out a home with a lot of equity.
Another important distinction: conventional mortgages are not assumable – other than in specific circumstances like a spouse assuming one in a divorce.
Only certain government-backed VA, FHA or USDA loans can be transferred to a new, qualified buyer.
A non-veteran can assume a VA loan, but the seller should consider their VA entitlement. It would be tied up as long as the buyer keeps the old loan.
With FHA loans, real estate agent and broker Jared Tye points out buyers typically have to pay a mortgage insurance premium or MIP.
“Obviously, you want to weigh each scenario, but it can absolutely make sense to do the assumption,” said Tye.
Buyers would have to meet certain criteria to qualify, factor in other fees and the time it may take to close on the house. The Diamond’s agent said it took the couple a little over 60 days to close on their house.
FINDING A HOME
How would a buyer find a home for sale with an assumable mortgage? NBC 5 looked at real estate websites, adding “assumable” as a key word in the advanced search box. Recently, our search pulled up several North Texas listings that mention assumable mortgages with interest rates of 2.625%, 2.75%, 3.125% and 5.9%.
Tye said this information isn’t always in the marketing, so it helps to know what questions to ask.
“Never hurts to have your agent call and say, hey, what kind of loan do they have on the current house? Let’s see if we can get creative,” Tye said.
Buyers and sellers should read the fine print, do your research and get qualified help.
Tye said a seller would want to ensure the assumption is approved by the lender to confirm they’re not on note if a new owner later defaults.
“We had no idea what an assumable loan was before we dove into this,” Sara Diamond explained.
The family moved in just over a week ago.
“We have a house that we can actually afford, that we can afford to do upgrades to throughout the years because we’re not spending $4,000 a month on a mortgage,” said Terry Diamond.
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