Did you know that some mortgages are assumable? This means that the seller of the home has the ability to transfer their mortgage loan to the new buyer. Both FHA and VA loans have this feature, and it could make homes with these types of mortgages more desirable in the coming years if interest rates rise.
Before taking over the mortgage loan, the lender of the FHA or VA assumable mortgage will require the buyer to undergo the standard underwriting process to make sure that the buyer is credit worthy.
An assumable mortgage is especially beneficial (to both seller and buyer) in an environment where mortgage rates are rising. An FHA or VA borrower For example, an FHA or VA loan originated today would likely have a rate in the neighborhood of 3.5%. Historically, interest rates on 30-year loans have averaged between 6-7%. When/if rates revert to their historical norms, the assumability of an FHA/VA mortgage will make the home more marketable because it would come with a mortgage with far below market rates. The seller may even be able to sell the home for more than comparable homes that would come with a market rate.
Additionally, for some FHA and VA loans, the transfer process is streamlined compared to getting an entirely new loan. For instance, in some cases a new appraisal may not be necessary, reducing the overall cost of the loan.
If rates rise in the coming years, we will see assumable loans become more popular, and it’s something that is worth being aware of if you are purchasing a home or refinancing your property.