Home prices today are 55% higher than they were a year ago, so this niche type of mortgage is becoming increasingly attractive to both buyers and sellers, experts say.

Home prices today are 55% higher than they were a year ago, so this niche type of mortgage is becoming increasingly attractive to both buyers and sellers, experts say.

The cost of entering the housing market has skyrocketed over the past year. Zillow estimates that the price of a typical American home today is 55% higher than it was a year ago.

and on average The interest rate for a 30-year mortgage is about 7%the idea of ​​buying or selling can be a bit daunting.

In fact, according to Redfin, 85% of people whose lock-in rate is below their current rate are: hold back the housing marketAnd the trades are falling left, right and center.

But if you’re thinking of moving and want to keep interest rates low somehow, there are ways. It’s a hypothetical mortgage.

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What is an assumed mortgage?

As the name suggests, a conceivable mortgage allows you to take on an existing mortgage and that includes the interest rate. So if you want to buy a house from a seller whose interest rate is her 4%, you can buy that house and keep that her 4% interest rate assuming your mortgage outstanding.

Sounds pretty good. especially now.

“If you think about it from a buyer’s perspective, when interest rates are low, people are less interested in exploring the possibility of a notional mortgage unless they actually need it,” said Daniel Hale, chief economist at Realtor.com. No,” he said.

“But now that interest rates are much higher than they used to be, there is a strong incentive for buyers to consider it as a possibility. there is.”

It’s important to note that not all mortgages can be assumed.Federal Housing Administration-backed loans (FHA), Veterans Administration (VA)or the United States Department of Agriculture (USDA) Yes, if you meet the requirements.

And those dealing with VA-backed loans say they’re growing in popularity.

“We are getting more interest Assumability of VA loans This is because interest rates continue to rise,” said Chris Burke, director of education at Veterans United Home Loans, in an email. “Many years of historically low interest rates have dampened demand for this understated benefit of VA loans.”

Decide if this arrangement is right for you

Home loans have many advantages, especially now.

“While interest rates are rising, the notional mortgage benefit is being able to acquire new homes and maintain low interest rates that homeowners locked in months or years ago,” Burke said. . “You’re basically taking over someone else’s mortgage, including the same principal and interest payments.”

If you are selling your home, advertising your home with a notional mortgage will make the sale easier. Low interest rates are very attractive to buyers. Worried about market conditions.

Additionally, closing costs associated with notional mortgages tend to be lower. According to the FHA, many of the costs associated with closing can be included in the loan, but you can always pay out of your pocket if needed.

However, there are some drawbacks that you should be aware of. One of them is that if you buy it, it can cost you a lot of money up front.

If you’re buying a house that costs $500,000, but you only have a $350,000 mortgage on it, you’ll need to make up the $150,000 difference. Or in cash.

“Cash or secondary financing is required to pay for homeowner equity,” Birk says. “Finding secondary funding can be difficult, and not all his VA lenders and servicers allow assumptions.”

read more: The Great Escape: Rich young professionals earning over $100,000 are fleeing California and New York.

Sellers may be able to make more money selling a notional mortgage as they may be able to sell for a higher price at a lower interest rate, but it can also be more tricky.

“Whatever the process for underwriting that mortgage is, you’ll also need to work with the lender on whether it’s available,” Hale says.

For example, there are certain rules when underwriting a VA mortgage that can have serious consequences if not followed.

“For seasoned homeowners, assumptions also have significant potential downsides,” Burke says. “Whatever VA loan entitlement the veteran has on his current homestay will be bound to the property until the original loan is repaid in full. It is for the successor to become a veteran willing to substitute homeowner rights.”

If that doesn’t happen, the veterans have less entitlement to VA loans for future purchases.

“Sometimes you need a down payment, or you don’t get the benefits of a VA loan at all,” says Birk.

Not all types of mortgages are conceivable

All of this, of course, assumes that mortgages are conceivable in the first place.

If you’re considering a sale and want to know if the loan qualifies, you’ll want to make sure your contract has an assumption clause. That clause is what allows you to have someone take over your mortgage on all terms.

It’s not the easiest route to home ownership for a buyer, but if you can make it work, it’s probably one of the cheapest at the moment.

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This article is for informational purposes only and should not be construed as advice. It is provided without warranty of any kind.

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