Agents Decoded - J. Philip Faranda
Illustration by Lanette Behiry/Real Estate News

Agents Decoded: Want to prove your value? Bone up on assumable mortgages 

Mortgage assumptions aren’t new, but they’re about to get a lot more popular because the math works for both sides of the closing table.

May 6, 2024
5 minutes

The direction of your business depends on decisions you make every day. Agents Decoded can help you by presenting the perspectives of seasoned pros who have been there, made mistakes, and found success.

In a world where consumers are increasingly asking agents what their value proposition is, I'd answer their question with one of my own: Have you ever heard of an assumable mortgage

If they are a seller and have an FHA, VA or USDA mortgage on their home, I'd have one hell of a value proposition for them. If they are a buyer, I'd explain how I would endeavor to get them a home with a mortgage under 4% in the current 7% market. 

All federally insured mortgages are assumable. Virtually all of them originated with higher loan-to-value ratio, so a potential buyer may not need a particularly large down payment. 

Here is the advantage for a home seller: It makes their listing more sellable, and it's a tantalizing differentiator. 

If the homeowner's rate were below 4%, for example — as is the case for millions of existing loans — I'd explain that I'd market their home as an opportunity to buy in 2024 with a mortgage rate not seen since early 2022.

The advantage for the buyer is obvious: significant cost savings. 

If a buyer had $150,000 for a down payment, as many do in my market, I'd explain how I would look for homes that meet their criteria with a relatively recent FHA or other federally insured mortgage — something I can find through public records or the assumable mortgage app Roam

Let's say the home price is $700,000, making the loan balance $550,000. With a 7% mortgage rate, the principal and interest payment would be $3659. But if the buyer can assume a 4% mortgage with 25 years left, the monthly payment drops to $2626.

The savings might shrink a bit if you add mortgage insurance required on FHA loans, but over the life of loan, the buyer will save hundreds of thousands of dollars — and another $150,000 or so because they will make only 300 payments on a 25-year loan, rather than 360 on a traditional 30-year loan. 

A gimmick? No. A way to demonstrate value? Yes.

This is not a new gimmick or out-of-the-box thinking, although it is on a side of the box that few licensees frequent. All FHA, VA and USDA mortgages are assumable with lender approval. The approval process is relatively simple, and appraisal issues are virtually nonexistent due to the LTV of the new purchase. 

It is safe to say that a buyer would be willing to pay a premium for this opportunity.

It is also rather obvious that sellers would want to list with an agent who can offer this as a marketing tool to maximize their client's proceeds from the sale. 

The big picture is even more promising for us as an industry. Employing practices like leveraging assumptions counters the myth that brokerage commissions are necessary evils, that buyer agents collect exorbitant fees for opening doors and forwarding forms, or that listing agents are simply beneficiaries of the convenient dynamic of low supply in the current market. 

In fact, we bring value beyond hand holding and door opening, and we have more tools to trade than meet the consumer eye. 

A valuable tool for savvy agents

There are millions of government-insured mortgages out there, so this is not a unicorn endeavor. We obviously cannot promise an assumption scenario to every prospective client, but we can use this practice, and certainly the inevitable success stories as it becomes more prevalent, to demonstrate a professional approach that dispels the used car sales stereotype perpetuated by the media and online trolls. 

An experienced real estate attorney (or title company, depending on your market) is crucial to make sure the seller has the release of liability for the original loan, which shouldn't be hard to do. And of course the buyer should also have their attorney or advocate making sure their interests are covered as well.

Does this require more work, and more research? Of course it does, but I never met a colleague worth their salt who was afraid to roll up their sleeves. We are paid on contingency for results, and that is a byproduct of not just labor, but also expertise and a professional mindset. 

Savvy agents will get good at mortgage assumptions. That's more than advice; it is a prediction I'm confident will manifest before your very eyes. 

And their clients will thank them for it.

J. Philip Faranda is a manager and associate broker at Howard Hanna | Rand Realty serving Westchester and Putnam Counties, just north of New York City. He was previously a broker-owner at J. Philip Real Estate, the top independent brokerage in the two counties by transaction sides, which he founded in 2005. He also writes a real estate blog which has been cited by major media outlets. The views expressed in this column are solely those of the author.

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