Planning to buy a house? Might as well take over the mortgage from the seller. Experts say transferable mortgages are becoming increasingly attractive to both buyers and sellers

Planning to buy a house?  Might as well take over the mortgage from the seller.  Experts say transferable mortgages are becoming increasingly attractive to both buyers and sellers

Planning to buy a house? Might as well take over the mortgage from the seller. Experts say transferable mortgages are becoming increasingly attractive to both buyers and sellers

The costs of entering the housing market have risen enormously in the past year. Zillow estimates that a typical American home costs 55% more today than it did a year ago.

And with the average 30-year mortgage rate approaching 7%, the thought of buying or even selling can be a little daunting.

According to Redfin, 85% of people with a fixed rate below the current rate are even holding back on the housing market. And deals are falling through left, right and centre.

But if you want to move and somehow maintain a lower interest rate, there is a way: a transferable mortgage.

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What is an acceptable mortgage?

As the name suggests, a transferable mortgage allows you to take on an existing mortgage, including the rate. So if you want to buy a house from a seller who has a 4% interest rate, you can buy the house starting from the amount still owed on the mortgage and keep that 4% rate.

Sounds pretty good, right? Especially now.

“If you think about a buyer’s perspective, when rates are low, people are less interested in exploring the possibility of an acceptable mortgage if they don’t really need to,” said Danielle Hale, chief economist at Realtor.com.

“But with rates much higher than before, there’s a strong incentive for buyers to consider that as an opportunity. And for sellers who have a loan that is plausible, to possibly advertise that.

It is important to note that not all mortgages are plausible. Loans backed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the United States Department of Agriculture (USDA) can be taken as long as you meet the requirements.

And those dealing with VA-backed loans say they’re getting more popular.

“We are seeing increased interest in VA loan adoption as interest rates continue to rise,” Chris Birk, director of education for Veterans United Home Loans, said in an email. “Years of historically low rates have curbed demand for this under-the-radar advantage of VA loans.”

Determine if this package is right for you

There can be many advantages to a transferable mortgage, especially now.

“During a time of rising interest rates, the advantage of a transferable mortgage is the ability to get a new home and keep the low rate that the homeowner was stuck with months or years before,” Birk said. “You’re essentially taking over someone else’s mortgage loan, including the same principal and interest payment.”

If you are selling, advertising your home with a transferable mortgage can also make it easier to sell, as lower interest rates are very attractive to buyers concerned about the state of the market.

In addition, there are usually fewer closing costs associated with acceptable mortgages. According to the FHA, many of the costs associated with closing the loan can be included in the loan, although you can always pay them out of pocket if you prefer.

However, there are some drawbacks that you should be aware of and one of them is that if you buy it can cost you a lot of money upfront.

If you are looking for a house priced at $500,000, but the loan you would take on the house is only $350,000, you need to make up that $150,000 difference either with a second mortgage, which can be complicated, or with cash.

“You need cash or secondary financing to pay off the homeowner’s equity,” says Birk. “Finding secondary financing can be a challenge. Also, not all VA lenders and trustees allow assumptions.

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While sellers could potentially make more money selling a presumed mortgage because a lower interest rate could allow them to sell at a higher price, it could also be trickier.

“You will also have to work with a lender regardless of the process of getting that mortgage, if one is available at all,” says Hale.

For example, there are certain rules for taking out a VA mortgage that can have major consequences if they are not observed.

“There is also a significant potential downside to assumptions for the experienced homeowner,” says Birk. “Whatever VA loan entitlement the veteran uses for his current home will remain tied to the property until his original loan is fully repaid. The only way to unlock it in an assumption transaction is for the contractor to be a veteran willing to substitute their entitlement for the homeowner’s.

And if that doesn’t happen, then the veteran is entitled to a VA loan for future purchases.

“They may need a down payment or, in some cases, not be able to use their VA loan at all,” says Birk.

Not all types of mortgages are plausible

This, of course, is all assuming that your mortgage is acceptable in the first place.

If you’re considering selling and want to know if your loan qualifies, you’ll need to confirm that there’s a plausible clause in your contract. That clause allows you to let someone take over your mortgage with all its terms.

As for buyers, while it’s not the easiest path to homeownership, if you can make it work right now, it’s probably one of the cheapest.

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This article provides information only and should not be taken as advice. It comes without any kind of warranty.

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