Assumable Loans and Resale Value
Below is a MRR and PLR article in category Finance -> subcategory Loans.
Assumable Loans and Resale Value
Summary
If you have a mortgage that can be assumed by a buyer, it may enhance your home's selling price.Understanding Assumable Loans
An assumable loan offers significant advantages by potentially making the purchase easier for the buyer and often featuring lower payments than new financing. However, the benefits depend on a couple of key factors. If the loan balance is significantly lower than the home's asking price, either a substantial cash down payment will be necessary, or additional financing might be needed. This extra financing could be offered by the seller. Also, if the interest rate on the existing loan is similar to or higher than current rates, there’s little to gain by assuming it.
Identifying Assumable Loans
To determine if your loan is assumable, check your loan agreement. FHA or VA loans are typically assumable, whereas conventional loans usually are not. Look for a “due on sale” clause, which allows the lender to demand full repayment if the home is sold. Some assumable conventional loans might have slightly higher interest rates.
Maximizing Resale Value
If your assumable loan offers an interest rate below the market, it can justify a higher sale price. While you'll likely face higher financing costs when you buy again, a better resale price offsets the loss of favorable terms.
Estimating Loan Value
With lower loan payments, a buyer can pay more while keeping monthly costs consistent. For example, if your home is valued at $100,000 and you have a $70,000 assumable loan at 8% interest with 25 years remaining, the monthly payment is $540.27. A new $70,000 loan at 10% for 30 years requires $614.30 per month. The resulting $74.03 monthly savings could finance an additional $8,000, making the assumable loan a strategic advantage when selling.
Planning for the Future
If you anticipate selling your home soon, consider refinancing with a new assumable loan at a high loan-to-value ratio. This can serve as a safeguard in case interest rates climb or mortgages become scarce when you sell.
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Article by Tommy Lee. For more information on finance and refinancing mortgage loans, visit [Smart Refinance](http://www.smartrefinance.net).
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