As you know, the Federal Housing Administration has been in the headlines a good deal recently. News that
As you help your customers decide on the best loan program for their particular situation, keep in mind that borrowers don’t always realize that FHA loans are assumable. That’s an important consideration, especially for first-time homebuyers who know they will be looking to move in the future. An FHA loan often makes good sense for those looking to refinance as well.
Explaining the potential benefits of having an assumable mortgage is easy. And you’ll be doing your customers a service if you help them think about a mortgage loan not only in terms of how it will impact them today or in the next year or two, but also several years down the line. With rates as low as they are today, taking out a mortgage that can be assumed in the future should at least be considered. A homeowner with an assumable mortgage at today’s rock bottom rates will find that they’ll have an edge if they are looking to sell in five to seven years. By that point, rates will almost certainly be higher.
Why do I mention five to seven years? Research has shown that most homes in the United States are sold within that time period. Having an FHA mortgage with a low rate that can be assumed by potential buyers will make your borrower’s home that much more attractive when compared to competing homes in the area. In fact, my wife and I are currently in the market for a new home, and we’re strongly considering an FHA mortgage precisely because of the assumability feature.
Fast forward to 2018 or 2020 when rates will likely be higher: A potential buyer is looking at your borrower’s home and a comparable home in the same neighborhood, The two homes are priced roughly the same. When the potential buyer learns that your borrower’s FHA mortgage is assumable at a rate of 3.5%, the scales will be tipped in your borrower’s favor. Assuming an existing mortgage can also be simpler and less costly for the buyer than applying for a new mortgage.
Along with explaining the benefits of an assumable mortgage, borrowers will also need to be kept up to date on the latest FHA changes. The premium on FHA loans will be increased by 10 basis points starting April 1. FHA is also reversing its policy on new FHA MIP cancellation. That policy currently allows FHA-backed homeowners to cancel mortgage insurance premiums once the outstanding principal balance of an FHA loan reaches 78% of the original balance and the MIP has been paid a minimum of five years. Starting on June 3, the agency won’t allow the removal of MIP throughout the life of a loan, regardless of term, if the loan's starting loan balance is higher than 90% of the purchase price or appraised value. For loans in which the loan-to-value begins at 90% or less—regardless of term-- mortgage insurance premiums must be paid for 11 years.
The assumability feature of FHA and VA loans is something that many homeowners and homebuyers aren’t aware of, and all too often, loan originators don’t think to outline that benefit to their purchase or refinance customers.
It’s an advantage that should be mentioned more often. After all, it’s our job to point out all the possible financing options to our customers, and to describe the pros and cons of each. Customers appreciate it when you advise them on how their loan choice today will impact them both today and in the future, whether it’s three years or 10 years from now. An assumable mortgage typically raises the value of the home, and will certainly make it more sellable. It’s a benefit today’s homeowner or buyer should be given the opportunity to think through. Plus, they’ll remember you as the person who gave them good advice, which can only lead to more referrals and repeat business!
