Benefits of Assumable Mortgages

The real estate market has peaked in Rhode Island and the housing market is showing signs of change. After a bullish run and unexpected turn of events with historically low mortgage rates and the highest real estate appreciation of all time, the market needed to lose steam, at some point!

Since early March 2022, 30 year fixed mortgage rates have increased from approximately 3.8% to near 6.9% for consumers with less than perfect credit, in the recent week. Residential mortgage rates have reached the highest level in nearly 12 years!Foot traffic for private showings and open houses has slowed significantly and there are roughly 40% more single family homes on the market today in late April 2022, than compared to early March, 2022.

According to Larry Kendal, author of “Ninja Selling”, “for every 1% increase in mortgage rates, your buying power will decrease by approximately 10%”. With this information, taken into consideration, over the course of just over one month, buyers have lost about 30% in buying power and consumer confidence has been shaken.

When purchasing a home, buyers can connect with a realtor who can provide them access to homes offering “assumable mortgages”. According to Ivestopedia.com, “buyers who wish to assume a mortgage from a seller must meet specific requirements and receive approval from the agency sponsoring the mortgage. Investopedia further states that loans covered under this program are Federal Housing Authority (FHA), Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA).

So, how does an assumable loan work? What are the benefits? A buyer can assume the interest rate that the home seller currently holds for the balance owed, when under the qualified programs. A buyer will have to pay out of pocket or take a second mortgage out on the remaining equitable balance that the seller is aiming to get.

Right now, is an opportune time for buyers to take advantage of these programs, because over the past 8 years, rates have been historically low in the 2’s, 3’s and 4’s. This allows a buyer to recoup buying power for the same monthly payment to get a larger home vs. an inferior home and location at the currentrates. When taking this into consideration, we can see why this is very palatable to buyers and sellers alike.

“Assumable loans can allow for consumers to take over VA (veteran affairs) mortgages, even when the buyer has no military work history”, according to Matt Bates of Movement Mortgage. Matt went on to say that there are certain approval steps that need to be made and the VA must approve that specific buyer for the loan to close. VA loans carry no private mortgage insurance and often times boast the best residential mortgage rates. Borrowers are encouraged to understand all of the details and seek professional guidance, according to Bates.

The good news is that sellers who also have to buy congruently are in a position where they can sell at an all-time high price point, take their cash out, place a substantial down payment on their next home and use a program like FHA, VA or USDA loans when possible, to assume the low mortgage rate of the current homeowner.

For more information, please contact your local Realtor or email Emilio DiSpirito at Emilio.dispirito@evrealestate.com for guidance.

By Emilio DiSpirito IV, Realtor, Team Leader of DiSpirito Team and co-owner of Engel & Völkers East Greenwich and Barrington East Bay

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