With interest rate hikes, we will likely see a correction in the housing market. For most, that's good news— we love a balanced market that takes the pressure off of both buyers and sellers. But in the mean time, it kind of leaves everybody wondering what to do in order to make a reasonable real estate move.
Sellers may be concerned about their listing's profit potential as more and more buyers are priced out of the market by higher home prices and higher interest rates.
Buyers, of course, are concerned about more expensive loans and whether or not they can make something happen before interest rates increase again.
And while interest rates are still low historically, we are absolutely in the midst of an affordable housing crisis because of inflation.
So, what can be done to help ensure successful real estate transactions, protect profitability, and ease the burden on today's home buyers? We have a solution that might be able to help you!
Consider an assumable loan option.
With an assumable loan, the buyer takes over the seller's mortgage, and the seller is released from further liability for the loan.
This is powerful because it allows the buyer to finance the majority of the purchase at a lower interest rate and make up the difference between the remainder of the seller's mortgage and the purchase price through a higher down payment or a second mortgage. While the second mortgage will have a higher interest rate, the principal payment will be much lower.
We highly recommend that if you're considering selling your property and your loan is assumable, that you advertise your willingness to re-assign the loan at your interest rate. This will increase your property's appeal in the marketplace, which mean stronger offers.
If you're a buyer, we highly recommend that you seek out properties that might offer an assumable option so that your loan is less expensive. If the mortgage payment is less than you qualify for, you can potentially be more competitive on price, securing a better chance at scoring a great property without breaking the bank.
So what loans are assumable?
You definitely want to check with your loan servicer, but most loans that are backed by the government (i.e. FHA, USDA, and VA loans), or loans that are kept in-house (portfolio and some conventional loans), could be eligible.
Also, it's important to understand that the buyer is going to have to qualify for the terms of the loan. If they are ineligible through the servicer, then they will not be able to assume the mortgage.
We hope this advice helps, and we would be happy to discuss this further with you! If you have any questions, don't hesitate to reach out.
Til next time,
Key Realty - John Yoder Team