Monday, May 7, 2018 / by Veenstra Team
Kalamazoo real estate - For the last 25 years, most buyers have gotten a new mortgage or paid cash when purchasing a home. Years ago when we (David and Cindi) purchased our first house, we assumed a mortgage at 8% interest when the rates were about 12.5%! We were thrilled to save so much money every month!
There haven’t been significant numbers of assumptions in the past 25 years because interest rates have been steadily going down and FHA and VA have also added qualification requirements on assumptions that were not present in the past. Since interest rates were going down and If a person had to qualify, they might as well do it on a new loan and get a lower interest rate.
Even though mortgage money is currently attractive and available, it is at a four-year high. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages originated in the recent past the question becomes.....Does it make sense to consider the possibility of assuming a lower interest mortgage?
FHA loans that originated with lower than current interest rates SEEM like they might have some advantages for buyers and sellers. For example,
- Interest rate won't change for qualified buyer
- Lower interest rate means lower payments
- Lower closing costs than originating a new mortgage
- Easier to qualify for an assumption than a new loan
- Lower interest rate loans amortize faster than higher ones
- Equity grows faster because loan is further along the amortization schedule
- Assumable mortgage could make the home more marketable
So, we took this question to Jeremy Drobeck of Amerifirst Home Mortgage. Jeremy is a very seasoned lender and besides knowing the lending market well, he also provides exceptional customer service. This is his response:
"I don’t think we will likely see assumptions come into play soon. Here is why: When the loan is assumed the buyers can only take over the loan. The new buyer can't add any additional amount to the mortgage. So if 100k is still owed on a house with a 150k sales price the buyer would have to bring in the difference(50k). Most buyers don’t have that much money to put down, and if they do, they should put 20% down and avoid the PMI they are going to have on the FHA loan. With that said there are certainly circumstances where the assumption would be the best route, but it is going to be the exception instead of the norm."
So there you have it! Assuming a mortgage is not likely to be the best option for you at this time in history.
Hope you noticed something else when reading this. Jeremy is the kind of lender that considers all the options and understands the implications of the various loan products. He works to make sure you have the best options for your circumstances. We would like to recommend that, if you are considering purchasing a house, you should contact Jeremy so he can help you determine the best option for you! Remember that a pre-qualification letter (or a proof of funds) is necessary if you are going to be submitting an offer on any home. So getting pre-qualified is the first step that you need to take in order to purchase a house.
Here is Jeremy's contact info and even a link to a quick application that will give Jeremy most of what he needs to start providing you with advice!
Jeremy Drobeck | Mortgage Consultant
AmeriFirst Home Mortgage
Office: 269.324.4240 x10132
If you are already pre-qualified or want to pay cash and you have not called us yet, please do so that we can set up the best home search tools and make sure you have someone working for you and protecting your best interests. Home buyers typically do not pay any commission and you will get the benefit of the entire Veenstra Team, our systems and strategies working for you so that you will be able to find a house in this market. Call The Veenstra Team at (269) 350-5514 and we will help you meet your real estate goals.
Talk to you soon!
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