Assumable Home Mortgages

While you’re screwed if you have a conventional home loan from a for-profit bank, many Gov’t-funded mortgages by the VA or FHA are assumable and may add to the value of your home at sale. Back 40 years ago when I was working for Exxon and mortgage rates were 14%, one of my female colleagues got an 8% loan from a program for disadvantaged minorities on the strength of being half-Korean with a Master’s degree in Chemical Engineering. She sold the condo after one year (the minimum holding period so that you didn’t have to repay the value of the discounted loan) for about 20% more than similar units in her complex, with the buyer assuming the 8% mortgage.



It looks interesting. Where can I read more details about it? I’m actually on the market for a house loan.

Google “assuming an FHA or VA home loan.”

Of course, the benefit of the low interest rate, assumable home loan is going to accrue to the seller rather than the home buyer, since the asking price is going to be increased to reflect the value of the assumable loan.



The link is behind a paywall so I can’t read it but one of the major disadvantages of this method, at least for VA loans, is that the “entitlement” (the ability to take out a VA loan) remains attached to the property if the buyer is not a vet. That means the seller (the vet) loses their ability to take out a new VA loan until the previously VA loan has been paid in full.

Still might be enough of a benefit but that could be a serious poison pill to a vet with an existing loan.

Not entirely, maybe not even mostly. Keep in mind that the new owner will always have the future flexibility to refi so while they might be able to lock in a lower VA rate, they are not going to take a deal that results in them paying the same monthly payment as they would pay under prevailing rates when they could instead get a normal mortgage (much easier - less paperwork) and then still have the ability to refi later to a lower monthly P&I payment.

Edit: I will also add in the fact that this would also make the new buyer immediately under water on the new loan so their ability to sell and/or refi would also be restricted so even more disincentive to pay extra.