Asking this one question could save you thousands.
Asking this one question might give you the option to get a 2.25% fixed rate 30-year mortgage on the home that you purchase next. Asking this one question could be the difference of over $1,100 a month IN SAVINGS that you could realize.
Millions purchased a home through some sort of financing option over the last couple of years from 2020 to 2022. Most of them were able to lock in a 30-year fixed historically low rate somewhere between 2.25% and 2.5%. Today, we don't have those historically low interest rate options. According to BankRate, the current average 30-year fixed mortgage is 6.83%
The lower the interest rate, the lower the mortgage payment. A principal and interest payment on a $400,000 mortgage with a *30-year fixed rate of 7% ($2,661) compared to a principal and interest payment on a $400,000 mortgage with a 30-year fixed rate of 2.25% ($1,529) is significant.
The estimated principal and interest payment on a $400,000 loan is $1,132 per month LESS at 2.25% than a comparable 7%. Remembering to ask this one question could save you $1,132 dollars per month on a $400,000 loan if you're able to assume a 2.25% loan.
The one question to ask when you make an offer on a home
Ask the seller if they have an FHA, VA, or USDA loan. If the seller of the home has an FHA, USDA, or VA loan, then the loan is assumable. If you're able to assume that loan and that loan has a 2.25% interest rate, then you get to assume that interest rate as well. This is the one question to ask.
An assumable mortgage is a home financing option where an existing mortgage (and its financing terms) are transferred from the existing homeowner to a buyer. The types of loans that are assumable are USDA, VA, and FHA. To assume this type of mortgage, it is required of the buyer to occupy the home as their primary residence.
The buyer is not required to be a U.S. Veteran or service-member to assume a VA loan.
If the purchase price is $400,000 but the seller owes $360,000, then who pays the difference? The buyer is responsible for paying the difference. If cash isn't feasible, then it will be the buyer's responsibility to get a loan to pay for the difference. Even if the loan for this $40,000 difference may have a higher interest rate, it may offset the monthly payment savings from securing a potentially 2.25% rate on the $360,000.
Finding the home of your dreams and discovering that the home has a USDA, VA, or FHA loan can take some time, especially if you're randomly looking at homes and asking the homeowner what kind of loan they have. Probably not the best approach.
There is an easier way - two ways actually:
Ask your real estate agent if they know how to find homes in your area that have an USDA, VA, or FHA loan. Experienced agents know how to do this and may be able to provide you the information that you need.
Call the local title company or go to their office and ask to speak with their customer service representative. Let the representative know that you're looking for homes in the area (provide county, city, and zip code) that have an existing USDA, FHA, or VA loan. To save them and yourself time, also provide them with what type of property you're looking for, i.e. single family, duplex, as well as other criteria such as number of bedrooms, bathrooms, assessed value range, etc... The information that the title company provides should include the homes that meet your criteria and the homeowners' names and addresses. At this point, it would be your responsibility to contact the homeowner and ask them if they would be willing to sell their home. The title company may assess a service charge for doing this.
If you find a homeowner with an assumable loan, then the process of assuming the loan will go through the homeowner's existing lender's loan servicing department. It is the discretion of the existing lender's loan servicing department regarding the decision of allowing transfer of the mortgage from the current homeowner to the buyer.
If you're in the market for a home and are willing to take the extra steps to finding an assumable mortgage, it may very well be worth your time to do so.
Learn more at The Home Loan Hub.
Terry Roberts is a U.S. Marine Corps Veteran and specializes in residential mortgages, including new construction, conventional, FHA, and VA home loans. He has helped more than 10,000 clients start the homebuying process across America.
*Monthly principal and interest payment of $2,661.21 for 360 months based on a rate of 7% (7.049% APR). Rate information is current as of 2/17/23. The example is a typical principal and interest payment based on a $500,000 purchase price with a 20% down payment. Payment estimates do not include taxes and insurance; therefore the actual payment obligation will be greater. Rates are based on the borrower's ability to qualify and are subject to hourly market fluctuations which may change the rates without notice.
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