It doesn’t matter whether you are selling your house, or trying to buy a new one, you want to have an advantage. For sellers, you want something that sets your house apart from the rest on the market. For buyers, you want to be able to qualify for the mortgage you want and get the best deal possible. Wouldn’t it be awesome if there was something that could give sellers and buyers this advantage at the same time?
Surprisingly enough, the FHA mortgage might just be this golden goose. FHA mortgages are assumable, which means that a qualified buyer can take over, or assume, the mortgage currently held by the seller. Why would you want to assume someone else’s mortgage? Because when you assume the seller’s FHA mortgage, you assume their interest rate. Let’s talk about how the assumable FHA mortgage creates an advantage for both sellers and buyers.
Advantage for Sellers
As a seller with a current low-interest FHA mortgage, you have a secret weapon. As buyers are looking to purchase properties, they’ll need to qualify for a new loan. As interest rates rise (like they have been), the actual monthly cost of a mortgage payment increases as well. A house with the same purchase price is immediately more expensive.
If you’re able to advertise that your home comes with a mortgage at a lower interest rate than what is currently available on the market, you’re putting money in the buyer’s pocket without taking any money out of your own. More importantly, you’re giving yourself an immediate edge over your neighbors selling their homes. If two homes are the same price, yet your home costs a buyer $100 less per month due to your lower interest rate, you win. Your house sells while your neighbor’s does not.
Advantage for Buyers
Buying a house can be stressful. You want the best house for the money you can spend. You want the lowest interest rate possible because this affects your monthly payment for (potentially) 30 years. To make things more complicated, interest rates change daily. What was 4.5 percent one day is now 4.75 percent the next.
With an assumable FHA mortgage, you have a huge advantage. You can take over the seller’s current lower-than-market interest rate. If they’re currently paying 3.75 percent and you qualify for their mortgage, welcome to the 3.75 percent club! What’s even better is that you don’t have to worry about those market fluctuations. No more timing the market for the best interest rate. The seller’s rate is locked in for 30 years so it’s not going anywhere.
Of course, you do need to qualify for the existing FHA mortgage before you can assume it. But it is no more complicated than qualifying for an FHA mortgage—something you’re likely doing anyway. Furthermore, with the prevalence of FHA mortgages over the past few years, it’s also likely that the seller from which you’re buying your next home currently has an FHA mortgage. As interest rates continue to rise, more of these FHA mortgages will have interest rates lower than what’s available to you.
Arm Yourself with the Facts
Since FHA mortgages have only been recently popular again, many buyers and sellers are unaware of this fantastic trait about FHA mortgages. For sellers, check into your current mortgage. If it’s an FHA mortgage and the interest rate is lower than current market rates, advertise that lower rate when selling your house.
For buyers, search for homes armed with the facts. Ask sellers about their current mortgage. If it’s an FHA mortgage with a lower interest rate than what is currently available, talk to your mortgage professional about taking the steps necessary to assume it. You might just get a better deal than you anticipated, and you won’t even have to beat the seller up to get it.
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Nice newsletter. Good article. Good information. Thank you. Carol
For conventional financing, borrowers with scores at 740 or anywhere above generally receive the same loan pricing (rate and cost). That being said, the better your credit the higher your chances of receiving loan approval with high debt to income (up to 50%) or high loan to value (up to 95%) which can be a major benefit when applying for a new loan. For Jumbo financing, borrowers with credit scores above 800 are generally rewarded with both better pricing and easier guidelines. There are no situations where better credit is a negative when obtaining new financing so we should all continue to strive to reach and then stay in the 800’s.
What are the advantages of a score over 800
Thank you Mike for this information. As a residential realtor the information that you provide is crucial to a successful transaction for my clients. You are indeed a pleasure to recommend to all of my clients. You are so professional, thorough, conscientious and pleasant to work with. !!
Hi Dane! Wanted to make sure I'm clear on this. Am I right in saying that on whichever remodel is done you still take a loss rather than an increase in value - the ROI will never exceed 100% of cost?