OH do I have a story about a non-qualifying assumption from the mid 1980's that was done out in Parker Colorado, a suburb now of Denver! Then it was horse property haven and country living! And it was one of the reasons that...
In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.
Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.
FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.
- Interest rate won't change for the qualified buyer
- Lower interest rate means lower payments
- Lower closing costs than originating a new mortgage
- Easier to qualify for an assumption than a new loan
- Lower interest rate loans amortize faster than higher ones
- Equity grows faster because loan is further along the amortization schedule
- Assumable mortgage could make the home more marketable
An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.
The process of assuming a loan is similar to getting a mortgage. One has to substitute your credit and liability to the lender for the original borrower and they are released from future liability on the loan. Given the rapid appreciation we have had here in Denver, often a 2nd mortgage or a HELOC might be needed to fill the equity difference. As a buyer you still need to qualify for both loans, yet if you have a large down payment and a home with a 2013-2016 era FHA loan fits the bill, it may be a possibility. And a great question to ask.