FHA – Whether you are an owner deciding whether to sell or refinance, or a buyer in today’s real estate market, talk with a lender about “assumable” provisions of the mortgage.
While no one can see into the future, we can see into the past. I don’t think anyone will be surprised that we may be looking back on today, from some year in the future, at dramatically lower interest rates. Most are expecting interest rates to be 7% or more, a few years from now. Most are expecting home prices to stay down and flat for some years to come. That means the cost of selling will be hard to recoup, and finding a buyer for the home you are trying to sell will not improve greatly from where we are today.
IF the buyer of your home 3 or more years from now, can assume your lower interest rate mortgage of today, that will be a selling feature. It happened before in the last recession, and it will happen again. The buyer will still have to qualify. The buyer will have to come up with the difference between the sale price and the loan they are assuming from you that has a lower interest rate (so don’t go overboard with downpayment on an FHA loan).
To the best of my knowledge, most if not all, conventional loans are NOT assumable. Most, if not all, FHA and VA loans ARE assumable. I’m sure Rhonda will chime in here and give us the scoop on that.
This weekend I was speaking with a young man who may be eligible to refinance his home and stay in it, though he is worried about possibly losing his job and having to sell in the next couple of years. I told him to try converting to an FHA loan when he does his refinance, keep the LTV as low as possible, and make sure there is an assumable feature.
I am a real estate agent, and not a lender. All I know is that if he tries to sell two years from now and interest rates are 7%, and he has an assumable mortgage at 5.5% or below, that could be of great help in a future market with more sellers than buyers.
Speak with an attorney about the potential downside of a “purchase money loan” vs. a refinance, in the event of future default, before refinancing an original purchase mortgage. More on that in one of my other posts of the day.