Assumable Loans: A Game-Changer in San Diego Housing Market

The housing market can feel daunting on its own. Factor in low inventory and rising interest rates, and it can feel outright impossible.

But there's a potential solution called assumable loans. These loans allow buyers to take on the seller's existing mortgage—often at a much lower interest rate than what's currently available.

If you’re new to this creative financing solution, keep reading. We’ll explain how it works and how it can benefit buyers and sellers.

What Are Assumable Loans?

In a nutshell, an assumable mortgage loan is one in which a buyer “assumes” responsibility for the seller’s existing mortgage rather than obtaining their own financing.

If you’re a buyer purchasing a property with an assumable loan, you’ll take over the seller’s existing mortgage, including their:

• Balance
• Terms
• Interest rate

While not all home loans are assumable, many VA, USDA, and FHA options are. Conventional loans with certain terms may also be assumable.

Benefits for Buyers

Lower Interest Rates

The ability to secure a lower interest rate compared to current market rates is one of the most significant advantages for buyers. That’s especially true in Southern California, where real estate prices tend to stay high. Assumable home loans in San Diego could translate to massive savings over the life of the loan. With today’s rates hovering around 6%, think of all you’d save if you were able to assume a loan with a 3% rate!

Lower Monthly Payments

Interest isn’t the only area of potential savings for assumable home loans. They often come with lower payments as well, making homeownership that much more affordable for buyers, especially those entering the market for the first time.

Benefits for Sellers

Enhanced Appeal

Assumable loans in California can attract a broader pool of buyers, especially those who might otherwise be hesitant to move to areas that may come with a higher cost of living. This increase in buyer interest can mean fewer negotiations and faster closings.

Potential for Higher Offers

Low interest rates are attractive, especially considering where the market currently stands. Homes that come with assumable loans with low interest rates could command higher prices, considering the value of reduced interest rates and lower monthly payments.

Take our recent client, for example, who had a home in a competitive area that they were ready to sell. Their assumable loan set their property apart, immediately attracting attention. After all was said and done, The Selby Team was able to leverage that unique selling point to secure an additional $75,000 for our client—all because they had an assumable loan.

Streamlined Transactions

Sellers don’t need to refinance or pay off existing loans, which could make the entire transaction more smooth. Such a streamlined process may also reduce the potential for delays.

Important Assumable Loan Considerations

While assumable loans do come with many advantages, there are potential drawbacks to consider, as is true with any type of financing option. Here are a few things to keep in mind when wondering if an assumable loan is the route for you:

• Qualifying process: There are lender qualifications for the buyer to meet, including income verification. If a promising buyer can’t show creditworthiness and ability to take on the financial responsibility of the loan, they could be denied.
• Upfront costs: There’s likely a difference between the loan balance and the home’s current market value. That difference needs to be covered by the buyer. For example, if the home is worth $600,000 and the assumable loan balance is $400,000, the buyer needs to cover that $200,000 difference, typically through a cash payment or a second loan.
• Loan restrictions: As we’ve already touched on, not all home loans are assumable. Before marketing their homes with this competitive edge, sellers need to confirm that their existing mortgage qualifies as an assumable loan.

Achieve Your Real Estate Goals

Assumable loans in San Diego are a win-win solution for both buyers and sellers. But they’re not the only way to achieve your real estate goals! Whether you’re looking for financing insights, want to explore neighborhoods or are ready to sell and start your next chapter, The Selby Team is here to help. Connect with us to get started!