Where Did the Assumptions Go?

Where Did the Assumptions Go?

For the last 30 years, mortgage rates have been on a steady decline and mortgage assumptions have not been practical. Even if a seller today has a rate lower than the current rate, the new buyer has to qualify to assume the loan.

Unfortunately, with conventional loans, the lender can increase the rate to the current rate which would mitigate the reason for assuming the existing loan. This change happened back in the early 1980’s by lenders adding due on sale provisions so buyers could not assume lower rates.

If a buyer qualifies, they can assume an FHA or VA loan. This would be an advantage or the buyer if the rate on the loan was lower than current mortgage rates for FHA or VA and if the buyer is an owner-occupy. Investors are prohibited from assuming FHA or VA loans.

Benefits or advantages to an assumption.
• Lower payments than a new loan.
• Closing costs are lower on an assumption.
• Assumption will be further into the amortization schedule.
• The equity in the home will grow faster.

With the current mortgage loan rates close to one-percent lower than a year ago, assumptions will probably not be used for financing a home in the near future. Freddi Mac is forecasting mortgage loan rates will stay low for 2021 at a average of 3.0%.

Since the Great Recession mortgage rates have remained low even though we had experts saying they would begin trending upward. If there is a rapid increase in mortgage rates then assumptions of FHA and VA loans could become a tool that buyers and real estate professionals will employ. This could add to the value and marketability of a property that is financed at the below market rate.

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