Several economic forces are brewing to create a perfect storm in making FHA assumptions a hot commodity for our future real estate market.
- Future interest rates likely to rise
- Realistic appreciation levels
- Expanded usage & loan amounts for FHA loans
- Less "affordability" in housing
What's old, is new again!
According to Bob Porter, a 40 year veteran in the local real estate industry, years ago "homes that had low assumable rates had a huge advantage over the market in both desirability and value". Mr. Porter went on to explain that many of the guidelines have changed to avoid some of the creative financing that occurred back in the 70's and 80's but assumable loans remains alive and well with FHA/VA.
We put together a few graphs to help illustrate how assumable loans can provide future value to buyers and homeowners. Let's assumethat a homeowner either purchased or refinanced their home with a 500K FHA loan at 5% interest and a 30 year term. This first graph compares monthly payments with varying interest rates.
The second graph represents the monthly savings a buyer would realize by assuming a 5% interest rate in a future market with rising interest rates.
The third graph measures the mortgage purchasing power with the amount of money saved by assuming the 5% FHA/VA loan.
A buyer can expect to save on typical closing costs as well. Currently, no appraisal or lenders title insurance is required for an FHA/VA assumption. Also, the lender holding the loan will typically only charge one point for processing the assumption package.
The burning question for sellers is: How much does this add to my homes value? Only a true real estate professional can answer that question.
There are obviously more factors to consider when determining the exact value an assumable loan provides to both buyers and sellers. The Mortgage Professor offers a more in-depth analysis for exploring the finer points.
If you would like to deliver the great news to homeowners sitting on these loans, our Customer Service representatives can hook you up with a targeted mailing list!
