Creative financing might spark home sale
1. See if your lender will allow a mortgage assumption.
In this sort of agreement, the buyer takes over payments on an existing mortgage. If that loan came with a low rate, assuming the loan could be advantageous. Not to mention, the buyer can save on higher closing costs associated with new mortgage debt.
While banks have traditionally not allowed assumable mortgages and some mortgage experts don’t see that changing — especially on 30-year fixed rate loans — others are seeing some cases of it.
“Most mortgages are nonassumable,” says Patton, but “given the challenged market conditions many areas are experiencing, this may be negotiable with the lender.”
With a homeowner in financial trouble, for example, the lender would often rather allow the loan be assumed than foreclose on the property, notes Jason R. Hanson, a real estate investor.
Christiansen says a number of large banks do allow assumptions on certain new and existing adjustable-rate mortgages. “I wouldn’t be surprised if more continue to do that,” he says. “It’s worth checking out.”
When an assumable mortgage is available and favorable, it would certainly entice buyers.
Before promoting it, though, 40-year real estate veteran Arnold Peck, president and owner of Milford, Conn.-based ERA Property World, says he would make sure both the rate and terms — such as prepayment penalties — would make it desirable. “I just had a fellow with a $100,000 prepayment penalty on a $300,000 loan.”
For protection, any seller whose lender is allowing a mortgage assumption should obtain a written release from further liability. In other words, never take it for granted that just because the buyer qualified for the deal, he will pay each month.