How to Get a 3.5% Interest Rate Again
Wouldn’t it be great if we could rewind time and inherit the 2.5%, 3.5% or even 4.5% interest rates of last year and beyond?
You'll need to find an assumable mortgage. These mortgages can be transferred from the original borrower (now the seller) to the next owner. Wherever the seller stops the buyer picks up under the same terms and rates.
Plot Twist: not all mortgages are assumable. Federally guaranteed or insured mortgages like FHA loans, VA loans and USDA loans are assumable. Conventional mortgages are not.
So how ‘bout that? For the past two years if you were an FHA, VA or USDA buyer you had a damn hard time getting your offer accepted. Now, when you go to sell, you have the highly prized unicorn.
Sellers: If you have an assumable loan you are the prettiest girl in the room. Facing 7% interest rates your home becomes very marketable in this climate. A low rate is impossible to get otherwise and could make all the difference if a buyer is choosing between two homes. Consider raising the asking price and making it a point of negotiation.
VA borrowers: Some or all of your “entitlement” from the VA remains tied to that house even after the sale. Make sure you will have enough entitlement remaining to qualify for the next home. Loop hole? Of course! Selling to another veteran or military member eligible for a VA loan allows you to substitute entitlements.
Buyers: prepare for a big down payment. Let’s say there’s $200,000 left on the mortgage you’re assuming but now, the house is worth $275,000. You may be stuck with the difference. If you can’t make up the span the lender may require a second mortgage which will have today’s higher rates and closing costs.
Sellers: In some cases, if the buyer stops paying on the assumed mortgage you're still responsible. There are a lot of nuances here that we have to discuss with a lender first. Still...it's worth considering!
In all cases you’ll need your lender’s thumbs up. Try and do it on the sly and a lender can demand payment in full from the seller.