In an ever-shifting housing economy, homebuyers may find it difficult to find an affordable home. However, with mortgage interest rates remaining at multi-year highs, assumable loans are becoming much more popular.
How to Buy a Home with an Assumable Mortgage:
- The first step in any home shopping process is to obtain a pre-approval letter from a reputable lender. Even when shopping for a home with assumable loan, buyers will require a pre-approval letter to prove to the seller that they are qualified to purchase the home.
- With a pre-approval letter in hand, the next step is to find a home with an assumable mortgage. One of the best ways to find a suitable home with an assumable loan is through a property search platform such as AssumeList. Not all mortgages can be assumed, so due diligence and research into the property you are interested in will ensure its mortgage terms allow for assumption. This generally entails government-backed loans such as VA, FHA, and USDA.
- Next, evaluate the property, specifically regarding investment prospects. Is the location ideal? What is the property’s condition? And perhaps most importantly, what is its rental potential? Check current market trends and rental comparables for other homes in the same community to give you an idea what this home could rent for. One important thing to consider is that FHA-assumed loans require the buyer to live in the house as a primary residence, which make them a little more complex as they cannot be rented out without the buyer first living in them for a period of time (generally 1 year, but this is not a set timeframe). VA loans can be assumed as an investment property from day 1 if the seller’s VA entitlement remains with the home.
- Look over the mortgage terms in detail to ensure you understand the interest rate, remaining loan balance, the amortization (payment) schedule, and any applicable fees that may come up during the closing process. Assess whether or not this aligns with the investment strategy established in Step 3.
- Finalize the sales price and terms of the offer with the seller. As recommended in step 3, be sure you know the remaining balance on the loan as you will generally need to come up with the difference between the mortgage balance and sales price as your down payment.
- Next, you must obtain approval by the lender who services the existing loan. Once you have officially applied and provided all financial documents requested by the lender, and passed a background credit check, the lender will approve you for the loan. Be prepared for your loan approval to take 45-60 days for approval.
- Ensure you are aware of any possible liabilities with the property, such as defects and potential repairs that may have to be completed. If the property being assumed is intended to be flipped, be sure to understand what work the home needs as this could have a significant impact on your investment strategy.
- Sign the papers and enjoy your new investment opportunity! If this is your first time purchasing an investment home, be cognizant of insurance, property taxes, and any local ordinances or HOA requirements that may apply.
In summary, it is possible to purchase a home with an assumable mortgage as an investment property. These types of transactions can greatly benefit both the buyer and seller if done right. Visit AssumeList and find the assumable home of your investment dreams!
