The recent surge in high-interest rates has indeed had a significant impact on the real estate market, causing many potential buyers to hesitate between buying and renting. However, there is an interesting approach to purchasing real estate that can still allow you to enjoy lower interest rates, especially considering that a substantial percentage of existing real estate loans have interest rates of less than 5%.
Assumable mortgages offer a potential solution in this scenario. Assumable mortgages are most commonly associated with loans offered by Federal Housing Authority (FHA), Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA). When you assume a loan, you essentially take over the original owner’s loan balance, interest rate, and the terms that were initially established with that loan. This can be a fantastic way to secure a lower-interest-rate loan, potentially making homeownership more affordable.
However, there are some important considerations to keep in mind:
- Loan Balance: You’ll need to come up with the difference between the house’s purchase price and the remaining loan balance. For instance, if the house is worth $300,000 and the loan balance is $100,000, you’ll need to provide $200,000 to complete the purchase.
- Loan Term: You’ll also have to accept the existing loan structure, including the loan term. If the original loan had a shorter amortization period, like 15 years instead of 30, you’ll have a larger monthly payment.
Despite these potential downsides, if the interest rate on the assumable loan is significantly lower than current market rates, it can still make financial sense to pursue such a deal.
Additionally, there are startups like Roam that are working to facilitate connections between real estate buyers and sellers with assumable loans. These platforms can help bridge the gap and make it easier for buyers to identify properties with assumable loans.
As with any real estate transaction, it’s crucial to do your due diligence, work with a knowledgeable real estate agent or attorney, and carefully consider the terms and conditions of the assumable loan before proceeding. Assumable loans can offer attractive opportunities for lower interest rates, but they come with their unique complexities and considerations.