It's time to embark on a new adventure. Maybe you're moving closer to family or pursuing a career opportunity in a different state. Hi, I'm Jury Hernandez, your Kissimmee Real estate agent. Whatever your reasons for making the move I'm here for you. In this article I will share one of the best tools to sell your home in a stable and/or buyer's market.
Do you remember those historically low interest rates? well we are going to utilize it to get your home sold. We will talk about you loan benefits and how letting a buyer rake over a loan could help you sell your home.
What is a Mortgage Loan Assumption?
Let's start with the basics. A mortgage loan assumption occurs when a buyer takes over the existing loan on a property instead of applying for a new loan. This means that the buyer steps into your shoes, paying off the remainder of your mortgage and assuming responsibility for future payments. But not all mortgages are assumable; in fact, the only assumable loans available today are government-backed loans such as VA, FHA, and USDA loans.
Who Qualifies for a Home Assumption Loan?
Now that we know what a mortgage loan assumption is, you may be wondering who is eligible to participate in this process. Generally, assumable loans can only be taken over by owner-occupants, meaning that investors are not eligible. However, there are specific rules for each type of government-backed loan:
- VA Loans: VA loans can be assumed by both veterans and non-veterans, but there are certain entitlement rules that apply. If both buyer and seller are veterans, they have the option to swap entitlement, but if the buyer is a non-veteran, entitlement cannot be transferred.
- FHA Loans: FHA loans do not have any entitlement issues, making them open to anyone who meets the eligibility criteria.
- USDA Loans: Similar to FHA loans, USDA loans also do not have any specific entitlement requirements, providing broader opportunities for assumption.
What Does a Seller Have to Do to Start the Process?
- Confirm Loan Assumability : The first and foremost step for sellers interested in an assumable loan is to confirm whether the loan is assumable. This can typically be done by reaching out to the loan servicer or consulting with a reputable mortgage professional.
- Steps to Take: Ask the loan servicer for a loan assumption package with the steps you will need to take during this process.
- Required Documents: Ask the loan servicer what documents are required to start the loan assumption process.
- Must Before Closing: The lender approves a release request releasing you of all liabilities from the loan. So Make sure you get the liability release letter BEFORE YOU CLOSE!
- Market the Property: Once the loan assumability is established, as a seller, you need to market your property. By exposing your listing with an assumable mortgage, you attract buyers seeking this unique financing opportunity.
What Buyers Need to Do to Qualify for an Assumable Loan:
To qualify for an assumable loan, buyers need to follow a specific process. Here's a simplified breakdown of the steps involved:
- Buyer's interested must have a Loan Pre-Approval Letter. This will make the process easier for everyone.
- Buyer's will need to get in contact with the your loan servicer they will pre-qualify them under their guidelines.
- Buyers will need to gather all the necessary financial information and documents requested by the loan servicer. These may include income verification, bank statements, tax returns, and other documentation to prove their ability to assume the loan.
Side note: Buyer's have to use your mortgage lender because you are assuming the seller's loan.
How long does it take to close on a house when you are assuming the loan?
The assumption process typically takes around 60 to 90 days for approval from the loan servicer. As a seller, it's essential to be patient during this time and to continue with the real estate contract process, including title work and inspections.
Closing Costs Involved for Sellers:
Now, let's talk about closing costs. As a seller, you may be wondering about the financial implications of a mortgage loan assumption. The seller closing costs will be the same as a traditional sell.
Appraisal: Do Buyers Need One?
When it comes to appraisal, the requirements may vary depending on the loan type and servicer. While some servicers may still request an appraisal, others may waive this requirement for assumption transactions. It's crucial to consult with a mortgage professional to determine whether an appraisal will be necessary in your specific case.
Caveat for Sellers with a VA Loan:
For those considering a VA loan assumption, there's an essential caveat to keep in mind. The VA loan program may have a half percent funding fee, which is typically applicable when borrowers obtain a new VA loan. However, this funding fee can be waived for veterans with a disability rating.
The Pros and Cons of Selling Your House Through a Loan Assumption:
As with any financial decision, there are advantages and disadvantages to selling your house through a loan assumption. Let's explore both sides of the coin:
Loan assumption Pros:
1. Attracts More Attention: Listing your home with an assumable mortgage can be a compelling selling point, as it can attract attention from buyers seeking the benefits of assuming a lower-rate loan.
2. Potentially Faster Closing: Although the assumption process taking around 60 to 90 days, selling your house through a loan assumption can lead to a faster closing compared to traditional financing because you will attract buyers faster. The benefit of paying a cheaper mortgage payment will help you sell faster overall.
3. Lower Closing Costs: The reduced closing costs associated with loan assumptions can be financially advantageous for both buyers and sellers.
Loan Assumption Cons:
1. Assumption Gap: One of the challenges sellers may face in an assumption transaction is the assumption gap. This refers to the difference between the purchase price of the home and the remaining loan balance. Buyers need to plan for this gap to ensure a successful assumption.
2. Limited Financing Options: Traditional financing methods may be limited for buyers assuming a mortgage, making it potentially more challenging to find subordinate financing or a bank willing to provide a second mortgage.
3. Cash Requirement: Some loan servicers may require the assumption gap amount to be brought in cash, potentially creating a financial burden for buyers.
Conclusion:
Congratulations! You've now ventured into the world of mortgage loan assumptions and discovered how they can benefit homeowners like you in Kissimmee. By embracing the power of assumable loans, you can attract more attention to your listing, potentially experience a quicker closing process, and enjoy lower closing costs. Remember, the road to a successful assumption transaction requires patience, collaboration with Assumption Solutions, and a thorough understanding of eligibility criteria. So go forth, embark on your new adventure, and unlock the possibilities of mortgage loan assumptions in the vibrant city of Kissimmee.
