- Guest column by Dan Polimino.
- Assumable loans return.
- As rates rise, they will be golden.
By Dan Polimino
Special to InsideRealEstateNews.com
I am amazed that I have a mortgage with less of an interest rate than what my parents paid for our home in 1968.
What really blew me away was when my lender told me that my loan was assumable. I thought assumable loans were a thing of the past, but FHA loans are assumable, and now some conventional loans are as well.
The assumable loan was almost a must for homebuyers in the late 1970’s and early 1980’s when interest rates climbed to 16 percent and higher. When a seller had an assumable loan, they definitely had an advantage over a seller that did not. For those of you who are not in the real estate market, here is how an assumable loan worked.
Let’s say an individual selling their home had an assumable loan and is asking for $390,000. The buyer interested in that home may agree on the purchase price and assume the seller’s loan. The seller’s balance on the loan is $300,000 so the buyer assumes the balance at the seller’s rate (say 3.5 percent) and then brings the $90,000 cash to closing to make up the difference.
Back in the 80s, some of these assumable loans did not even require the buyer to qualify. Some also had a provision that they could raise the interest rate. They are not that way now, so be sure to check with your lender on the terms. Most of the assumable loans will also require the buyer to pay a transfer fee (perhaps $350 or more).
If you are purchasing a home or refinancing your home, I think every homeowner should look up the option of getting an assumable loan.
Let’s face it: interest rates have nowhere to go but up. God forbid the interest rates get to 8, 9 or 10 percent but if they do, a homeowner selling their home with a low assumable interest rate is in the driver’s seat. It’s safe to say that a buyer would pay a premium for a home with a low and assumable interest rate. This could easily add thousands of dollars in value to someone selling their home.
Dan Polimino is a brokeroOwner with the Colorado Dream House Team, Keller Williams Realty DTC. Contact Dan at firstname.lastname@example.org, codreamhouse.com or coloradodreamhouse.com
Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.