I was tired of fighting with mortgage lenders about self-employment income, high-interest rates, and dealing with scarce inventory that fit our family’s needs. We decided to rent a bigger home. I was beyond done. It wasn’t meant to be. The awards for entrepreneurship did not extend to quickly buying a home.
My wife found a home with motivated owners due to a divorce. They had only lived there nine months and needed to make a move. The best way to say it is that the price point didn’t accommodate the rising interest rate environment, and they were open to many options.
I discussed rent-to-own options, and finally, she said the magic words: “They would even make an assumption – they don’t need to make money on the deal.”
My father had been diagnosed with stage four liver failure at that time, and we were aggressively looking for a home so he could move in with my family. He had been working full-time, despite the immense pain and turmoil he experienced daily.
To overcome the disparity in my income, my father agreed to be our co-borrower on the mortgage assumption application. This was ideal because he was also moving in with us.
I quickly applied with our names, and our combined income was approved. We agreed on a final sale price and were off to the races.
I have been in the mortgage industry for nine years, with my loan officer in the industry for 19 years and my Realtor for over 10 years. While all parties knew this option existed, none of us had ever participated in a real mortgage assumption transaction. I had written a dozen or so mortgage assumption content pieces for various mortgage lenders and realtors, but have never seen a single deal shake out.
Everyone was in for a new experience, and here are the things we learned almost immediately.
Assuming a VA loan
I have nothing but the utmost respect for everyone serving in the military. I have several family members on active duty; this is a sacrifice, and veterans deserve every benefit possible.
Veterans Affairs (VA) mortgage loans can be an excellent product for veterans. VA loans can be assumed by anyone, and the new borrower assumes those benefits. You do not have to be a veteran to assume a VA loan.
I am not a veteran, but I did assume a VA mortgage.
Minimum timeline of 12 months
The sellers had only lived in the home for nine months. To make a mortgage assumption, you must live in the home for 12 months. To move my father in, we opted to rent the house for the remainder of the three months. Ideally, these types of loans can close in 30-45 days from application.
Assume everything
You assume everything about the loan. The focus, of course, will be the mortgage rate, which is almost half what the current market mortgage rates are today. In addition, I received the existing escrow account as well.
However, for some reason, you must pay property insurance up front for a year. Still, these small concessions and fees pale compared to what we’d have to pay if we bought a home traditionally in this high-rate environment.
The price difference
Homeowners at certain price points may need help to sell their homes in this high-rate environment. In our case, we agreed to pay the list price and the difference between the remaining loan and the list price. They had only been there nine months, and the price they bought was the same as the price they listed. So, we didn’t have much to cover.
We paid nothing down and very few fees. Hypothetically, if a homeowner lives in a home for several years, this would be an incredible option for a borrower to cover the difference and receive a mortgage rate that is potentially almost half of the current market rate.
My father grew extremely ill in the weeks leading up to moving in and passed away seven days before we took occupancy. I had to reconfigure my taxes to show income qualifying for the mortgage payment we would soon take over. If my father hadn’t stepped up, we wouldn’t have had a chance to secure the deal of a lifetime.
Three months later, at the closing table, clasping a picture of my father, I went through a traditional mortgage loan closing. The 20+ mortgage title professional had never closed a mortgage assumption in his entire career.
Were we lucky? Maybe a little bit. It was a culmination of luck, mortgage knowledge, and timing.
When going through my father’s stuff after he passed, we found a New Year’s letter from one of those television evangelists he had subscribed to. The letter spewed about affirmations and claiming victories in your life. On that piece of paper, my father wrote down our new address. So maybe it was that.
We live in a weird market. The demand to buy a home has remained strong. As mortgage and real estate professionals, we must continuously educate and inform our clients about every opportunity that may exist.
Mortgage assumptions seem to be the Bigfoot of our industry, but they exist and are a viable option for thousands of home sellers and borrowers. I would recommend checking the option out.
This column does not necessarily reflect the opinion of HousingWire and its owners.
To contact the author of this story: Steven Cooley at ArtVsMath.com To contact the editor responsible for this story: Sarah Wheeler at [email protected]