Rising Mortgage Rates Make Assumable Loans More Appealing

It’s no secret that mortgage rates fluctuate and that, lately, they’ve been climbing. But as real estate demand remains strong, both buyers and sellers are looking for creative ways to achieve their goals. One increasingly attractive option in today’s climate? Assumable loans. If you’re considering buying or selling a home, this blog all about assumable loans is one you won’t want to miss.

The Current State of San Diego’s Market

What with the thriving job market, desirable neighborhoods, and proximity to the ocean, it’s easy to see why San Diego’s real estate market remains competitive. That said, rising loan mortgage rates have slowed some buyers' ability to enter the market.

Affordability is a top concern for many, and in this environment, assumable loans may offer buyers a way to secure more competitive interest rates while also giving sellers another way to make their property stand out.

What’s an Assumable Mortgage Loan?

An assumable loan is a type of mortgage that allows a buyer to take over the seller’s existing loan—including its terms and interest rate. Because mortgage rates today are higher than they have been in years past, it’s clear how this can be an attractive option. Unlike a traditional loan, where buyers must secure new financing at current rates, assumable loans let those buyers benefit from the low rates locked in by sellers.

How Do Assumable Loans Work?

Let’s say you’re buying a home with an assumable loan. You’ll work with the seller’s lender to transfer the loan into your name. Just as if you were to get your own financing, the lender will assess your creditworthiness and financial stability.

If approved, you’d assume the remaining balance, interest rate, and payment schedule of the seller’s mortgage. Typically, you’d need to make up the difference between the loan balance and the home’s purchase price, either through a cash payment or secondary financing.

Are All Home Loans Assumable?

No, not all loans are assumable, so if you’re looking for this kind of opportunity, it’s important to know the types of home loans that are assumable.

• VA loans: VA loans are assumable but are usually limited to qualified service members or veterans, which means they’re not an option for everyone.
• FHA loans: FHA loans are popular and have the added benefit of typically being assumable.
• Conventional loans: Unless specified in the terms, most conventional loans are not assumable.

Pros and Cons of an Assumable Mortgage Loan

As is true with any financing option, assumable loans have advantages and potential drawbacks.

Pros

• Potentially lower interest rates: This is a great perk for buyers, as they can benefit from rates secured during a lower-interest period. A low rate could potentially save thousands over the life of the loan.
• Lower closing costs: It’s possible that an assumable loan could have fewer fees compared to a new one.
• Increased appeal: An assumable loan is a strong selling point, especially in high-rate environments, and could help sellers attract more buyers.

Cons

• Limited loan types: As we briefly mentioned, not all loans are assumable.
• Lender approval: Buyers will still need to gain lender approval, which means the potential to be turned down.
• Down payment requirements: Because buyers need to cover the difference between the home’s sales price and the remaining loan balance, they may need to make a large cash payment.

Navigate the Market With Help From The Selby Team

We understand the complexities of today’s market and are here to guide you every step of the way, whether that means sharing our insights on financing or introducing you to neighborhoods that align with your lifestyle. Connect with us to learn more about how assumable loans and other strategies can help you reach your real estate goals!