{"id":234,"date":"2010-09-15T11:38:00","date_gmt":"2010-09-15T11:38:00","guid":{"rendered":"http:\/\/dankrell.com\/blog\/?p=234"},"modified":"2019-10-05T09:27:02","modified_gmt":"2019-10-05T13:27:02","slug":"assumable-mortgages-and-housing","status":"publish","type":"post","link":"https:\/\/dankrell.com\/blog\/2010\/09\/15\/assumable-mortgages-and-housing\/","title":{"rendered":"Assumable mortgages and housing"},"content":{"rendered":"

The case to expand availability of assumable mortgages<\/p>\n

by Dan Krell \u00a9 2010
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When the financial markets went into crisis mode a couple of years ago, ideas were tossed around to help a housing market sliding into an abyss. One of the least compelling and unpopular, yet sensible proposals in the last two year to assist the housing market was increasing the availability of assumable mortgages. Because the appeal of assumable mortgages is somewhat of a long term plan and the severity of the crisis was deemed to require immediate and direct intervention, the assumable mortgage will have to wait for its day to come (again). That day may be arriving soon.<\/p>\n

Besides the criticism about being an unfeasible short term solution to the housing market on the brink, some of the assumable mortgage proposals were unnecessarily complex and suggested immediate changes to existing mortgages and deeds of trusts; in fact some suggested immediate interest rate drops of existing mortgages to provide incentive to home buyers to purchase homes assuming those mortgages. Critics of assumable mortgages also claimed possible interference to the secondary mortgage markets proclaiming additional loss to the industry due to reduced mortgage originations.<\/p>\n

If you\u2019ve never heard of an assumable mortgage, it is a mortgage that allows someone to take over mortgage payments from a home seller as part of a home purchase transaction. Up until the late 1980\u2019s many home mortgages were assumable; however of the mortgages originated today, only FHA and VA mortgage programs allow the homeowner\u2019s loan to be assumed.<\/p>\n

The features of an assumable mortgage that make it attractive to home buyers and sellers also make it disadvantageous. Besides allowing a home buyer purchase a home acquiring a mortgage with a lower interest rate than prevailing rates, which can make the mortgage payment more affordable; the home buyer undergoes a streamlined credit and income qualifying procedure; which reduces the overall stress of the mortgage process.<\/p>\n

The benefits of an assumable mortgage for a home seller include the possibility of using the loan as a selling point to buyers looking to qualify at a lower interest rate with a streamlined mortgage process.<\/p>\n

The downside is that the seller\u2019s mortgage interest rate may be higher than market rates. Additionally, if the loan is significantly less than the purchase price the home buyer will most likely have to come up with a higher down payment. Other disadvantages may also include assuming the terms and conditions of the loan- including penalties and any prepayment conditions.<\/p>\n

\"\"<\/a>Assumable mortgages assisted lagging housing markets of the past, when sky rocketing interest rates and tight credit made it difficult to buy a home. Like past housing slumps, today\u2019s housing market can also benefit from assumable mortgages. Besides reducing some lending pitfalls, today\u2019s low interest rates could be assumed at a later time (when interest rates may be significantly higher). Although assuming someone else\u2019s mortgage may not seem attractive today, it\u2019s clear that historically low interest rates will not remain at this level much longer; increasingly difficult mortgage underwriting guidelines and higher interest rates will certainly make today\u2019s mortgage attractive to future home buyers.<\/p>\n

A simple solution to a probable enduring sluggish housing market is to expand the availability of assumable mortgages beyond FHA and VA so home buyers will have more options and incentive to purchase a home in years to come; in good economic times and bad.<\/p>\n

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 13, 2010. Using this article without permission is a violation of copyright laws. Copyright \u00a9 2010 Dan Krell.<\/p>\n