A Market Moving at the Speed of LifeJuly gave us a clear look at the Denver Metro market as it is: measured, patient, and increasingly shaped by life circumstances. Moves are happening less because
Assumable Loan
Dated: January 25 2023
Views: 84
The buzzword in the industry now is “assumable loans”.
It makes sense that buyers would prefer a lower interest rate. Rates went from sub 3% to around 7%, now in the low 6% range. Many buyers, and their brokers are exploring assumable loans. The reality is, I don't know a single person that has successfully closed a transaction with an assumable loan. I'm not saying it hasn't happened, we just haven't seen one run through this brokerage yet. I have seen seller listings advertise assumable loans but when you call the seller’s broker, they have no idea how to do an assumable loan transaction. Same goes for buyer brokers. Hopefully, this broker tip will point you in the right direction.
Several things I'd like to point out:
1. Just because a low interest rate loan is assumable, doesn't mean it's doable. Very few people have ever done a loan assumption. If you are representing a seller and want to advertise the loan is assumable. The seller should contact their loan servicer prior to listing the property to find out what is involved with the process. Do not wait until you have a buyer.
2. On a normal transaction, the buyer will provide a lender letter to the seller. The seller will potentially accept the offer based on the strength of the buyer’s lender. The buyer is at least “pre-qualified” with the lender they will be using. In the case of an assumable loan, the buyer will not have a lender. They need to be approved by the current servicer of the loan. The loan servicer will not be able to approve the buyer or the assumption until the buyer and seller are under contract. It won’t be easy, and it won’t be fast. For those of you who did short sales a decade or so ago, this will feel similar to that.
3. The contract to buy and sell is set up for a transaction with a loan assumption. There are a few things to know about the dates and deadlines.
4. With a loan assumption, there will be no dates in the deadline table for New Loan Application, New Loan Terms, and New loan Availability.
5. You can still use Appraisal deadlines; however, the appraisal would be for the benefit of the buyer not the lender.
6. A seller might want credit information on the buyer prior to accepting their offer since the buyer will not be working with a mortgage loan originator. In this case the Buyer’s Credit Information Deadline can be used. This obligates the buyer to provide their credit report and employment information to the seller. Keep in mind, even if the seller approves the buyer’s creditworthiness, it does not mean the current holder of the loan will approve the buyer. A letter from a mortgage loan originator will not mean much since there will not be a new lender.
7. Other dates in the date and deadline table that would apply are:
- Existing Loan Deadline (the date the seller must deliver to the buyer all loan documents and terms of the loan).
- Existing Loan Termination Deadline (the date the buyer must terminate if they don’t like the loan terms)
- Loan Transfer Approval Deadline (the date by which the lender must approve the assumption, or the deal terminates)
M Eric Romero RFC, CCIM
Director of Broker Management
Your Castle Real Estate
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