There has been a lot of buzz lately about assumable mortgages and wow, gee whiz, isn’t that great that you are getting a low fixed rate on an assumable mortgage which you can use in the future when rates go up and you want to sell your home.
Assumable mortgages were a hot commodity in the 1980s because back then interest rates between 11% and 17% interest were typical, so if you had a mortgage with say an 8% or 9% interest rate, it was valuable when you went to sell your house. Also keep in mind, housing was less expensive then than it is now, especially in Albuquerque, and most people either had enough money saved to put 20 to 50% down payment on a house. So times were very different indeed. I personally can attest that when I arrived on the Albuquerque scene in 1994, the approximate median housing price was about $135,000, much, much lower than it is today.
“Here’s the deal”, I said to Rich Cederberg, a local Realtor friend of mine as we were discussing how great assumable mortgages were. “You have to have the right set of factors all in play at the same time to make an assumable mortgage worth anything.”
- Rates must have risen substantially, above and beyond the rate you have.
- If you have paid down the mortgage past say 5 or 7 years, when you really start drilling down principal, anyone who buys your house is going to have to come up with the difference between the sales price and the principal balance on the mortgage.
- The purchaser(s) also have to qualify with their credit and debt to income.
- If it is a VA (Veteran’s Administration) loan, the buyers have to be eligible military.
- You also have to assume that we have little to no appreciation in the housing market, because then again, you are trying to make your assumable loan attractive to the buyer, but if you sell your home for say, $200,000 and the principal balance on your loan is $150,000, it is less attractive to a buyer who needs to put down $50,000 as opposed to 3.5% on a new FHA (Federal Housing Administration) mortgage loan which would be $7,000.
So, yes, assumable loans are great, wonderful, such a bargain, but keep in mind we would need to see times similar to those after the “gas crisis” of the mid to late 1970s to set all the corresponding factors in motion and make it the commodity it once was.
This is the last in a series of regular Thursday morning posts on Albuquerque Mortgage info from Melinda Potcher of Divine Mortgage. I want to thank Melinda for her excellent contributions to AlbuquerqueRealEstateBuzz.com. Her popular articles have showcased her vast knowledge and experience in the loan industry. If you have questions about assumable loans or any other type of loan, or if you’re looking to purchase a home or refinance one, I would highly recommend that you contact her. -Rich Cederberg
Potcher is celebrating her 20th anniversary in the Real Estate Industry in 2012.