There is a way to get a much lower mortgage rate from the past, but it’s complicated, not common and requires what could easily be a six-figure equivalent of a down payment.
Assumable mortgages are those that lenders will allow sellers to sign over to buyers, with the existing interest rate and existing remaining balance. Assuming the seller’s existing loan rate would almost certainly mean a much lower rate, depending on when they bought, and it gets the buyer around today’s much higher prevailing rates.
Assumable mortgages are allowed in only certain circumstances, and not those loans that are conventional financing. Assumable mortgages can apply to VA, FHA and USDA loans.
If a buyer finds a seller able and willing to sign over their existing mortgage, the buyer pays the selling price, which would most certainly be higher than the seller’s remaining mortgage balance.
“The buyer has to bring cash to the table to cover that seller’s equity. The hurdle to getting into a situation like that is quite high, because the buyer is going to have to bring enough money to the table to pay out the seller’s equity,” said Lisa Sturtevant, chief economist at listing service Bright MLS.
An option may be the buyer taking out a second mortgage to cover the difference, but an assumable mortgage is not the panacea it may sound like, and does nothing to help cash-strapped first-time buyers get into the housing market.
There is no motivation right now for a seller to enter into an assumable mortgage agreement.
“A seller might do that if they were having trouble selling the home, if the market was really difficult or there weren’t enough buyers out there,” Sturtevant said. “That’s just not the market we find ourselves in right now. Sellers still generally have the upper hand.”
According to Bankrate, there are advantages for buyers beyond a lower mortgage rate. Closing costs may be lower. There is no need for an appraisal, and the buyer does not have to mortgage shop. But the buyer is limited to the current lender, and the buyer still has to apply and be approved for the loan.