Guess who’s back, back again? (name that artist)
It’s FHA and they are here to stay! (Hey that rhymed)
It is funny how cyclical things really are and in the mortgage world we are no different. Lending practices have now repeated themselves with decreasing home prices and FHA loans becoming the save all loan that every mortgage company is making it’s new darling.
FHA loans have accounted for more that 60% of the loans I have closed over the past 9 months and in my office it’s 75% or more. So it is no secret that FHA is the loan to choose for a variety of reasons:
- Fist Time Home Buyers can achieve a 100% purchase.
- You don’t have to have perfect credit to qualify.
- Gift money from relatives is encouraged.
- Refinance your upside down mortgage. (Short-Refi)
- Cash the equity out of your home up to 95% of the value.
- A buyer can qualify with a non-occupant co-borrower. (allows co-signers)
- New higher loan amounts for higher priced areas. (FHA LOAN LIMITS)
- The loan is assumable when the buyer goes to sell their home. (Hang on here!!!)
ASSUMABLE….. Wait a minute here you mean to tell me that if I sold my home the new buyer is going to take over my payments? Well that is partially right!
Here is how Assumable FHA Loans work……
Say you buy a property today for $100,000 and you get a new loan at an interest rate of 6.5% on a 30 year fixed term. You plug along and 5 years later you want to sell your home that is now worth $150,000 and the new buyer is trying to qualify can only get a 9% interest rate for their new loan.
You can offer the buyer the opportunity to “assume” your loan and take over your payments.
Putting it all together, the balance of your loan could be around $85,000 or so after you made the payments for 5 years and the new buyer would have to come up with the difference or $85K (minus) $150K (equals) $65K difference.
The benefits to the buyer are two fold, they get an interest rate that is much lower than the current interest rate they could get from a bank AND they have an accelerated pay off schedule because there is only 25 years remaining on the note!
Now this isn’t such a big deal when it really comes down to it because most people won’t fully understand the benefits until you try to sell your home. The hard part will be remembering that you can allow the new buyer to assume your loan.
I will leave you with this, when it comes to loans the FHA mortgage is one of the most expensive when it comes to closing costs. (I hear you, the costs can be financed but that doesn’t mean it isn’t expensive) To counter that cost in your mind it might help you to remember that your FHA mortgage is assumable so when you go to sell your property you will have a competitive edge over your competition allowing you to sell your home at top dollar in a timely fashion.
Get my Free Report :
“The FHA Loan Secret to getting up to $10K for Home Improvements when you Purchase Your New Home.”
Email me for your free report at Brent@brentlane.net
Brent Lane
The Lane Group
http://thelanegroup.blogspot.com
FHA loans and the assumability clause will be used more often in the current real estate market. There are millions of people with little or no equity and want to sell their home. In a traditional transaction they would be forced to bring money to the closing table. There is another option. They can list their house on http://www.homeassume.com and have someone qualify to assume the mortgage. It allows the seller to save those funds to use as a down payment on a new home and will provide more business to real estate agents and mortgage brokers. It is a win win for the buyer and the seller. The seller in most cases can move in with little or no money down.
Great post. Looks like you know your stuff, I’ll keep you in mind when clients ask.
Thanks for sharing all your thoughts and deep insight. I was not expecting all the amazing opportunities and facts which we can get by FHA loans.
Love the way you add: “If you enjoyed reading this post, your website visitors might find it useful too. Just copy and paste the code below and give your visitors access to great real estate information.” – great idea!
Brad- Thanks for the great tip! I think it is good to have that kind of service available.
GO Zone- Thanks! I am glad you enjoyed the topic and I appreciate any referrals you send my way!
Stair- Also glad you enjoyed it!
Colin- thanks for stopping by!
You’ve made several good points. FHA has been around forever and is just now finally regaining popularity among homeowners and potential buyers. It’s a great program for consumers who have little funds available for a down payment. But if you have 10% or more saved, you can avoid many fees that are only charged on FHA loans.
Thanks for sharing your meanigfull thoughts.
When one is taking a loan he/she must know how to repay the loan because the banks can not give someone money and the he/she does not have any way of generating money in order to repay the loan.
What if the house is 10 payments behind and is in foreclosure? Do the 10 payments need to be brought current prior to closing or assuming or would they start the new buyer as being current on the loan?
Also, what about a USDA grant of say $10,000? If the original owner owned it for say 8 years and the papers say 10 years will the entire 10k need to be repaid? Is it prorated? Could the new assuming buyers take over the grant as well? If they qualify?
I’m very interested and just found my dream property that is almost this scenario.
Yes, FHA loans make up the bulk of the mortgage market today. Anyone wanting a home loan should look at FHA loans.
Does the buyer need to get qualified first when assuming an FHA loan? If so what is the process? There is an owner of a home and has no equity to sell but now finds himself with three properties. The buyer doesn’t qualify for a typical loan due to the bust of the housig market but can make the payments comfortably if he was able to assume the loan.