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What are assumable mortgages and how could they help homebuyers?

home, key, mortgage

Jeff Glover talks with WJR Radio in Detroit.

JAMIE EDMONDS: The latest idea to revive the housing market is called Assumable Mortgages, where the home buyer not only gets the house, but gets the seller’s mortgage. Is this a possibility for us here in Michigan?
Let’s ask Jeff Glover, owner and realtor at the Glover Agency.

 

JEFF GLOVER: Hey, good morning. Thanks for having me on.

 

JAMIE: So we’ve been talking about these golden handcuffs, could this release them?

 

JEFF: It could for some. It is a little easier said than done. Of course, most mortgages that are out today don’t qualify for Assumables, so that eliminates a lot of properties. We do know that all government loans are Assumables, so anyone that had an FHA or a VA, absolutely that loan is Assumable, but there’s some challenges for that.

 

LLOYD JACKSON: Jeff, one of the key challenges with these assumable mortgages seems to be the big hurdles that you have to go through, you know, when you close the deal, particularly when it comes down to the down payment, kind of walk us through what the home buyers need to consider when they’re dealing with these.

 

JEFF: So first things first, what the challenge with the Assumable Loans is, if you’re making an offer on a property that’s got other offers on it, the seller is not going to be very excited to go through the process of waiting to see if you get approved for their Assumable Loan, even if their loan is Assumable. So that’s going to be one challenge that buyers have if they’re in a competitive offer situation.
Now, if you’re not competing with other offers, heck yeah, the seller will do, you know, they’ll jump through hoops to see what they can do to help you assume their loan.

But what many are missing with the Assumable Loan option is you don’t get to rewrite the loan under your terms in terms of, you know, what you want to put down, you know, if you want to do a 5% down or 20% down. You are only assuming the balance.
And so someone who has a 3% or 4% interest rate, you know, if they’ve been in their home for five years and they’ve put, let’s say, 20% down at that time, today’s buyer is probably going to wind up putting 30% to 35% down on a home in order to get that rate versus 5%, 10%, 15%, or 20% to get today’s rate. So that’s making it difficult, especially for a lot of first-time buyers to take advantage of this.

 

GUY GORDON: You know, the whole idea of an assumable mortgage is so foreign. I mean, we really haven’t had them for nearly 40 years, right? Yeah. So let’s define it for folks that might not know what it is, but basically when you’re not just buying the home, you’re also buying the person’s mortgage, which gives you a lower rate.

But as you point out, you’ve got to pay them for the equity that they have in their home.

 

JEFF: That is correct. Yeah, obviously there’s going to be a sales price negotiated and the loan amount, instead of doing the typical, let’s just say you’re putting 20% down, 80% loan to value, the loan amount will be what’s left and then whatever’s not left has to be covered by the buyer.

 

GUY: But you could be assuming a mortgage that’s now posted at half the rate of what’s being offered in the marketplace today.

 

JEFF: You sure can. Yep, you sure can.

 

JAMIE: But the amount of money is scary. And even when you said 35% down, I’m like, I don’t know anyone’s doing that much down.

 

JEFF: Yeah, that’s probably the one area that’s missed when people hear of the opportunity of assuming a loan. Also, you have to qualify for following similar guidelines that the borrower of that loan had to qualify for.
So if that’s an FHA loan, you’ve got to qualify to receive and get approved for an FHA loan.

 

LLOYD: Jeff, you know, when you look down the road, do you foresee these assumable mortgages becoming more prevalent in the housing market? Or do you think that, you know, these hurdles need to be dealt with before they gain some type of wider acceptance?

 

JEFF: Well, again, the majority of loans today are not assumable. So unless Fannie or Freddie or somewhere from the government came in and said, okay, we’re changing this to where all loans are assumable, it’s going to take something at that level. Just like they did back in 1982, they changed it. They added the “due on sale” clause to mortgages, which prevented the assumable loans from taking place. So they essentially would have to reverse that to make this process a lot easier because it is a marketing tool.

We have a handful of listings right now where we have listed in the remarks, “seller willing to allow buyer to assume their mortgage” or “property has an assumable mortgage.” So from a seller standpoint, it does become a little bit of a marketing tool.

 

GUY: So yesterday, the existing home sales numbers came out, they fell unexpectedly for the second straight month, but the median selling price rose to $400 ,000, $407 ,600, and apparently this was across the country that things were a little bit stymied.
Just give us a quick status report. What are you seeing in terms of prices and when do you see this beginning to thaw and more inventory becoming available?

 

JEFF: Yeah. So Metro Detroit, we just had our sales meeting yesterday where I reviewed the Metro Detroit MLS numbers. Sales were up by double digits in Metro Detroit. And that’s something we hadn’t seen in the last couple of years. The sales have been kind of flat. I’m referring to April, of course, May is not out yet because we’re still in May. But sales were actually up in Metro Detroit by 12%. So we’re an outlier. Yeah, there’s a handful of outliers out there and Detroit is one of them. And our prices year over year are up about seven, seven and a half percent. So that’s some positive news as well. One number that did surprise me there, Guy, was the increase in inventory.

We actually have more homes for sale today than we had at this same time last year. And if that trend continues, that should balance things out a little bit, which is a good thing for both buyers and sellers.

 

JAMIE: There’s more inventory? I’m not finding it on the east side.

 

JEFF: Yes, there’s actually, yep, every single county, Wayne, Oakland, McComb, Livingston, Washington, every single county in Genesee County had an increase in inventory in the month of April, year over year.

 

JAMIE: Jeff, I can’t believe you said, well, what you need, Jamie, is the right realtor, a guy named Jeff. Uh -huh, because Jeff sells.

 

JAMIE: There you go. That was inferred.
Well, Jeff, thank you for explaining what an assumable mortgage is and possibly it could be a reality to some here in our area. Thank you. Jeff Glover, owner and realtor at Glover Agency.

 

JEFF: Yeah, thanks for having me. I’m sorry to burst everyone’s bubble on the assumable loans there, but we hope we hope we see more of them for sure.

 

JAMIE: And more inventory. Thanks. That’s right. You bet.

 

GUY: Not a lot of incentive for the mortgage providers to get on that bandwagon because they like those loan origination fees and want you to have to go through that process again.

 

JAMIE: The part that really stuck out is you have to qualify just like the original borrow did. That’s got to be tough to find the same, I don’t know, credit score and all of it.

 

GUY: Yeah, indeed it does.

Listen to the full interview at WJR.