Assumable Mortgages In DC
Obsolete or Market Advantage?
Do you have a low rate assumable mortgage?
Now, we’re rediscovering assumable mortgages and reassessing their relevance in the DC real estate market.
What is an assumable mortgage?
How does it work?
The simplistic version goes like this:
The seller checks their loan contract and confirms with the existing lender that the loan is assumable
Seller submits a request to the lender to offer the assumable mortgage to buyers on their upcoming home sale
Lender agrees and the home is listed
Qualified buyers wishing to buy with the seller’s existing loan rate and terms apply to the seller’s lender for an assumption mortgage
Once approved, the sale goes through and the loan obligation is transferred from the sellers to the buyer, releasing the seller from any further responsibility.
Downsides For Sellers
If you proceed with a ‘Simple’ assumption, a private transaction between you and your buyer, you can be held liable if the buyer defaults on the loan.
Keep these points in mind
- If you have a great deal of equity, buyers must bring a large sum of cash to the table in order to make up the difference between the remaining balance of your existing mortgage and the purchase price, or obtain a second mortgage at market rate
- If your interest rate is not significantly lower than the current market rate, the costs and cash requirements of an assumption will not be attractive to buyers
- If you have a VA loan, the buyer does not have to be in the military to assume, but the lender and regional VA loan office will need to approve the assuming buyer in most cases. Also, some or all of your entitlement could remain tied up in the home even after the sale to a non-military buyer, depending on the loan amount. If you planned to use it to qualify for a new VA loan, it may not be available to you. If the buyer is another VA-eligible buyer, however, their own entitlement will replace yours.