Can I Assume The Seller’s Loan?

Christian: [0:10] Welcome to another episode of the Awesome in Seattle podcast. This is your host, Christian Nossum of the Awesome Nossum Group at Wilson Realty Exchange, Inc, and we are a Seattle area real estate team. We work all around Western Washington, not just Seattle. Today, we're talking about something that if you follow anyone in the real estate space on Instagram or social media, I guarantee you've seen someone post some very clickbaity, uh, headlines- Yeah about this. And you've probably gone, "Wow, that seems like a great deal." And we're talking about assumable mortgages. So I've been asked this so many times lately. I guarantee you have as well.

Dan: [0:48] Yeah.

Christian: [0:48] Let me introduce my guest. I got Mr. Dan Keller, the man, the myth, the legend of New American Funding. Thank you, Dan, for being here.

Dan: [0:55] This is gonna be fun. This is gonna be quick, but fun.

Christian: [0:57] Yes. This is not gonna take long.

Dan: [0:59] Yeah. It could get boring real fast- … so we're gonna keep it quick.

Christian: [1:03] It could, it could. Yeah. But this is why we want to talk about this- Yeah … 'cause it's all over social media. Yeah. Assumable mortgages, how can you get yourself a 2% interest rate or a 3% interest rate in this market? All right, we're gonna lay out the exact truth. Yeah. We're gonna drop some truth bombs, maybe burst your bubble, unfortunately. Yeah. Maybe not. Maybe not, but let's, let's go into it. So Dan, first off, what is an assumable mortgage?

Dan: [1:27] Yes, so this will be the anti-clickbait version of- … everything that you'll- Sorry to disappoint you yeah, everything you'll see out there. Yeah. So you're, you're right, Christian. A lot of the times, anything you see online from a mortgage lender or a real estate agent is typically clickbait to get you to either go to their website or to call them or whatever, so. Yeah, yeah. An assumable mortgage is, let's say, Christian, you own a home, okay? And you own a home that's worth a million dollars and you owe $500,000 to the lender still. Yep. Okay? And you have your home for sale, and someone comes to you and says, "I'll buy your home. Would you do- participate in an assumable mortgage? Meaning, I see that you have a 2.5 30-year fixed rate. Rates are at 7% right now. I'd like your rate." Well, and you're like, "Hey, maybe I can use that as a marketing feature- Exactly … to sell my home- Yep … maybe to get more money." Yep. Here's where the wheels fall off on the assumable mortgage cart, okay? So sellers think it's a good idea because they maybe got some bad advice from their real estate agent. Like, "Hey, you could use your 2.5% 30-year fixed right now as marketing." Mm-hmm, mm-hmm. Sellers really don't need extra marketing right now. The market is really helping you out pretty nicely, right? True, yeah. The lack of inventory and all that stuff, number one. Number two, here's what you need to know, Christian, as a seller. Mm-hmm. If you want to participate and allow a buyer to assume your mortgage- Yep … your nice, low, sexy 30-year fixed rate- Yep … they still have to bring a substantial amount. They still have to buy the house from you for your sell price. Let's say- Yeah … it's a million dollars. Yep. You owe 500- But my loan

Christian: [2:55] is only 500, so where's that other

Dan: [2:57] 500 come from? They need to… That means they need to bring $500,000 to the table.

Christian: [3:00] You can't get a loan for that?

Dan: [3:01] So depending on the type of mortgage. Mm. So most assumable, and this, I know this is your next question, what mortgages are assumable? Yep. Most mortgages in America are not assumable.

Christian: [3:11] Yeah.

Dan: [3:11] Okay? So conventional loans- They're not assumable govern- uh, uh, jumbo loans- Mm … okay, those are not assumable. Mm-hmm. FHA loans- Okay … VA- Yep … and USDA loans are assumable.

Christian: [3:22] Okay.

Dan: [3:23] Those are government-backed loans. Most government-backed entities don't want you or don't allow for you to have a second mortgage attached. Oh. So conventional loans allow for a second lien. Jumbo loans allow, may allow for a second lien. Most government loans don't. Yep. Okay? So that's an asterisk to look into. Mm-hmm. So that means, Mr. Buyer, cool, this would look good, this sounds good, but you have a substantial down payment to bring. Now, here's the risk to the seller. Let's say you're a veteran. You served in the US Armed Forces. Yep. You have a VA loan that's at 2.5%. Yep. Your VA eligibility or entitlement- Mm-hmm … is going to stay tied up in that home if you were to assume it, and you're still on that- So if you assumed my

Christian: [4:03] VA loan, I can't then get a new VA loan, 'cause you can only have one at a time.

Dan: [4:08] Well, you can have multiple, but your entitlement and your eligibility is still taken up for that particular home. Oh. So if you have some left, if you have bonus entitlement left over to go out, but in most cases, yeah, you're gonna have it tied up. Mm. So also, you're gonna be on that mortgage loan, depending on the differ- the, how you assume the loan- Mm-hmm how you set that up. You're gonna be on that mortgage loan now with the assumable buyer.

Christian: [4:31] Hmm. So I'm still on the hook if they stop paying the mortgage? Is that what you're saying?

Dan: [4:35] Loan's still in your name.

Christian: [4:36] Ooh.

Dan: [4:36] Yeah, with them on it now. That's

Christian: [4:37] scary.

Dan: [4:38] So here's the other thing. They don't come to me, the mortgage guy, or a bank or a credit union to get the new loan. They have to then, you now have to work with, the buyer has to work with your servicer, your lender. So another hurdle you have to overcome is w- m- some lenders are saying, "Nope, even though you can assume, we are not participating in that." We're not doing

Christian: [4:55] it.

Dan: [4:56] Yeah. Yeah. And then the third or fourth hurdle, the borrower actually has to qualify now So credit, income, asset qualify. Yeah. Well, if they don't have $500,000 down…

Christian: [5:05] They can't qualify.

Dan: [5:06] Yeah. So and one of the questions I know you wanted to ask is which loans are assumable. Yes. We talked about that. What would be the next steps, like how would you do that? Mm-hmm. Well, you need to call the servicer. You need to make sure they get pre-approved with the servicer. You need to make sure the servicer's okay.

Christian: [5:20] And again, the servicer is, if I'm the seller and you're assuming- Mm-hmm … my loan, it's whoever I pay my mortgage payment to. Yeah. That's the servicer. Mm-hmm. So e- even if it's an FHA loan, you're not calling FHA, you're calling Chase Bank or- Mm-hmm … Bank of America or whoever the- Yeah the servicer is. Yep. The one that I'm paying that to. That's

Dan: [5:38] it. Yeah.

Christian: [5:38] And then you gotta try and get to the right person, which I can tell you is not the easiest task. So-

Dan: [5:43] Yeah, it's tough.

Christian: [5:44] It could potentially happen, probably won't.

Dan: [5:47] 16 years in the mortgage industry. Hundreds of conversations around- assumable mortgages. I've never participated in one. They just fizzle out. Yeah. They just typically don't work. Yeah. Now, what would the ideal situation… I- Yeah … let's wrap with this. Let's,

Christian: [6:03] let's say one that you could do.

Dan: [6:04] That you could do. Mm-hmm. I think in a declining market-

Christian: [6:08] Yep … Dan: so, which we're not in. We are not

Dan: [6:10] in. We're not in a declining market. Prices are increasing, yeah. But let's say you, again, we'll use you as an example. Yeah. You're a veteran and you bought a home. Mm-hmm. Or you are maybe a first time home buyer and you used FHA to buy your first home. Mm-hmm. And you put a minimum amount of money down. The home doesn't have a ton of equity. Yep. But you got a really low rate. Yeah. And you may have lost your job, or you need to relocate, or again, you need that as an extra marketing strategy to get you out from under- Yep … that mortgage obligation. Mm-hmm. That might be a good scenario- Mm-hmm … to, to have a buyer or to market a buyer to assume your mortgage.

Christian: [6:43] Got it.

Dan: [6:43] Yeah. Yeah. There's-

Christian: [6:45] So not a lot of times where it makes

Dan: [6:46] sense. No. I see a lot of these ads out there and these, a lot of Instagram and TikToks on them, and I'm just like, "That just wouldn't make sense." The person, how many first time home buyers do you know are coming to table with half a million or 200, 300, 400, $100,000? Not- Very few … Speaker: very often. Yeah. And most sellers have… I know that when you sell homes- Mm-hmm … most sellers, they want their cash and they wanna run.

Christian: [7:05] Yeah.

Dan: [7:05] And they wanna be done with that mortgage, they want it paid off. Yeah. They wanna move on to another phase in their life. They

Christian: [7:08] don't want any extra risk- Yeah if they don't have to.

Dan: [7:11] Yeah.

Christian: [7:11] Like, if there's, if there are two buyers- Mm … two offers on the table, one where the buyer's assuming the mortgage and the seller is staying on the hook for it essentially- Mm-hmm … and one where they're getting a new mortgage at a higher, higher interest rate- Mm-hmm … 'cause it doesn't matter to the seller, they're gonna take the one where they have no risk- Yeah at all instead of the one that, that leaves some risk on the table.

Dan: [7:32] That is correct.

Christian: [7:33] Yeah.

Dan: [7:33] Yeah.

Christian: [7:34] Okay. Well, thank you, Dan. I'm sorry for bu- bursting your bubble, anyone- … that was hoping they could make this happen. The likelihood is very small that you could make this happen. It's not 100% a, a no. Mm-hmm. But it's probably a no. Yeah. Most likely a no. I appreciate your time on this. Yeah. I know you've answered more questions than I have on

Dan: [7:52] this, but I've even gotten this a lot. Yeah.

Christian: [7:54] So thank you- Yeah … for your time. Thank you for listening to this episode of the Awesome in Seattle Podcast. Told you it was gonna

Dan: [8:00] be quick.

Christian: [8:01] I know. We didn't, it, it doesn't take that long to- Yeah, yeah go over the- Yeah … the potential options and pros and cons- Yeah … and, and that. So thank you very much. Hopefully you learned something from this episode, and if you have questions, you can always reach out, AwesomeNossumGroup.com/schedule. You can schedule a time to have a strategy session with us. They're totally free, no obligation. You can also come to our beers and home buying class, beersandhomebuying.com (opens in a new tab). That's it for this episode of the Awesome in Seattle Podcast. We will see you in two weeks. See ya.