Transfering a low rate FHA loan when selling

[run_in_SD]

I have a locked 30 year FHA loan at 3.75. I remember when getting the loan that FHA loans are transferable. What benefit will this bring me when time comes to sell? Have you heard of sellers offering a locked rate loan packaged with the house? If rates going are %5+ or even 6+, what kind of markup can I place on the home?

Getting a low rate loan seems like a great offer for prospective buyers, but I’m just not sure of how much overhead would be involved in the process. Has anyone seen this done?

[CA renter]

They’re called “assumable mortgages,” and, IIRC, there were pretty popular back in the 1980s when interest rates were very high. Here’s some more info:

…

An assumable mortgage allows a buyer to assume the rate, repayment period, current principal balance and other terms of the seller’s existing mortgage rather than obtain a brand-new mortgage, according to James Hines, a spokesman at Wells Fargo Home Mortgage in Des Moines, Iowa.

In theory, any type of home loan could be assumable. However, only two types of typical loans have this feature: FHA loans, insured by the Federal Housing Administration, and VA loans, guaranteed by the U.S. Department of Veterans Affairs. Conventional loans typically are not assumable.

http://www.bankrate.com/finance/mortgages/assumable-mortgage.aspx

[livinincali]

Ball park each percent point (100 basis points) is worth about 13% of the home value. I.e. a $430K loan @ 3.75 is just about equal with a $380K @ 4.75, both are just under $2K per month.

The problem of course is any kind of markup for your home is going to have to come out of the buyers pocket in cash. The buyer pool that has the cash to pay you for the lower interest rate is pretty thin. Say home price go down or stay the same to reflect the high rates. The buyer can’t cash out equity on the lower monthly payment because the house isn’t worth the monthly payment at 3.75. It’s worth the monthly payment at 5 or whatever the interest rate is.

[scaredyclassic]

Could you have a separate contract to be paid a monthly fee for the loan, at some discount to the actual savings?

[livinincali]

[quote=6packscaredy]Could you have a separate contract to be paid a monthly fee for the loan, at some discount to the actual savings?[/quote]

I suppose you could house carry some sort of contract but there’s nothing backing it. If the person chooses not to pay you don’t have equity to go after. It also has to come out of the buyers income so it might be hard to find the buyer where the assumable loan is 25% of their gross and they have another 5% to pay you.

[scaredyclassic]

What about a lien on the house at a certain interest rate?

[Anonymous]

If and when a buyer assumes your mortgage they would save on interest each month and would accumulate a certain amount of savings over the life of the loan. The “markup” you mention is called the Mortgage Assumption Value (MAV) and is the net present value of the amount buyers would save over the life of the loan. Zumption.com shows all of these numbers for homes with assumable mortgages currently for sale across the country. To figure your numbers you could find a house for sale on the site that has similar details to yours or call them and ask them what the numbers would be. What’s involved in the assumption process? It not more complicated than any other closing but it is a little different. Sellers need to request an assumption package from their loan servicer, the buyer has to pass a credit worthiness review, and the seller has to agree to assume the obligation to repay the loan. It’s not hard, but not many real estate professionals understand assumptions yet. Zumption.com has a lot of information on assumable mortgages and the site lists homes for sale nationwide that have assumable mortgages and whether or not they are in the money, meaning the rate is lower than today’s like yours is.

[recordsclerk]

I would be more concerned with getting out from under the PMI payment. I don’t think the average buyer would understand or even care about the assumable rate. You might be able to get a small premium at most. For the most part, buyers are using search engines at the max amount they can afford based on pre-qual. If your house is listed above max amount, they won’t even know that it exists. Also price is more important than rate. You can always refi if rates drop, but you can’t refi out of the inflated price. If rates go up above 6% or more, you might have something of value. You would also probably have to carry a second loan for this to work.

[scaredyclassic]

List it super low to attract attention then explain benefit, provide math analysis, try to start bidding war to get value of the loan

[scaredyclassic]

List it super low to attract attention then explain benefit, provide math analysis, try to start bidding war to get value of the loan

[Author]

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