Home Loan Assumability is Making a Comeback to Western New York

As interest rates slowly increase, we’re starting to see more and more buyers in Buffalo, Lewiston and Niagara Falls taking advantage of assumable home loans to make the purchase. Mortgage assumability is a feature that enables homebuyers to take on the loan previously obtained by the seller. The catch here is that the buyer has to pay interest at the same rate as the seller did. This feature is limited to mortgages that are covered by the Department of Veterans’ Affairs (VA) or the Federal Housing Administration (FHA). If you have a loan insured by either of these government bodies and are looking to sell your home, now is the time to market the mortgage along with the home.

With interest rates increasing, this is a convenient option for potential home buyers in Western New York since the seller may have obtained the mortgage at a rate lower than the prevailing one in the market today. Aside from the cheaper mortgage payment, there are a few other benefits of home loan assumability for the buyers:

  • The buyer doesn’t have to pay the additional processing fees charged by lenders when originating a new home loan. There are many charges and expenses associated with getting a new mortgage that are completely avoided.
  • The buyer doesn’t have to get the house appraised (and pay for this expense). Many buyers may still bear this expense voluntarily but its not a requirement when taking advantage of an assumable loan.
  • A recording tax may not have to be paid.  A recording tax is normally paid each time a mortgage is obtained on a property. In this case, since a new mortgage is not being originated, a new tax will likely be avoided altogether.
  • Since some part of the loan would have already been paid off by the seller, it is likely that a larger chunk of the mortgage payment goes towards paying off the principal amount.

These are some of the benefits for homebuyers to assume home loans when buying a new home in Lewiston, NY or Buffalo, NY. Now this may not turn out to be the best option for all buyers. For instance, if you are looking to buy a home for the first time, you might not be able to get 100% financing. Let’s say the value of the house is $150,000 while the seller owes $100,000. You will have to make up the difference of $50,000 by paying cash or by negotiating with the seller for seller financing.

Buyers also still have to undergo the standard screening process for creditworthiness by the VA or FHA. Finally, the buyer has to waive the seller off all future responsibilities and obligations pertaining to the loan.

In a market where interest rates are on the rise, home loan assumability is a great option for buyers. Interested in learning more about how you can take advantage of this? Give us a call and I’d be happy to discuss.

GreatLakesLightHouseLogoFinal