When interest rates rise, buyers are often forced to make hard choices about the cost of housing. Higher rates, coupled with the significant rise in home values over the last few years, have forced many buyers out of the homebuying market entirely. However, one segment of the real estate market—the mortgage assumption market—has the potential to outperform the rest. A mortgage assumption takes place when the buyer takes over the seller’s existing mortgage at closing in lieu of getting a new loan. Currently, the only loans in the market with a standard qualifying assumption clause are VA, FHA and USDA loans.

Deborah Baisden, CRS, GRI, a sales associate with Berkshire Hathaway Home Services in Lynnhaven, Va., has seen an uptick in VA assumptions in her market. “About 22% of our population is military,” she says. “Many of these loans were originated or refinanced after March 2020 and carry extremely low interest rates and payments,” says Craig O’Boyle, broker-owner of O’Boyle Real Estate Group in Colorado Springs, Colo. For most real estate professionals, there’s an education gap regarding mortgage assumptions, says O’Boyle. That’s understandable considering assumptions haven’t been common since the 1980s, a decade when interest rates averaged 12.7%. O’Boyle says agents should know these important points about mortgage assumptions.

• VA, FHA and USDA mortgages all carry a qualifying assumable clause, which means any owner-occupant buyer can qualify using the same standard the loan was issued under with the existing mortgage servicer. Investors cannot assume these loans.
• VA loans can be assumed by both veterans and non-veterans. Veteran-to-veteran assumptions allow the buyer to substitute their VA entitlement onto the loan and release the seller’s entitlement for use on a future VA loan. Veterans who allow an assumption by a non-veteran leave their entitlement behind until the loan is paid off—while others will only sell veteran-to-veteran.

Source: Realtor Magazine