Assumable Mortgages Coming Back in Vogue

Last Updated Apr 30, 2009 8:59 PM EDT

Peer into my real estate crystal ball and you'll see that down the line, assumable mortgages are going to be red hot. As one of my Facebook friends said in response to my post Should You Refinance? The Rules of Thumb Have Changed:
I recommend getting an assumable loan. This way, you could consider the option of selling the house with a 4.5% loan!! Now, that's a deal that will knock the socks off buyers when the market rates are 8-9%.
She's right. Assumable loans will be another hook for sellers to hang a buyer's hat on.

Assumable mortgages were a great invention. You could buy a house and simply assume the mortgage that the seller had (plus make a cash payment for equity, if necessary). It worked out spectacularly well in the 1980s, when mortgage interest rates hit 18 percent in 1982, and didn't work their way back into the single digits until the early 1990s.

These days, with home values as low as they are, assuming a mortgage might be the way to quickly and cheaply get into a property. (It won't work if your loan's interest rate is a lot higher than the going mortgage interest rates, which are about the lowest in about 50 years.)

The problem is, just about the only loans that are assumable are government-backed mortgages like FHA and VA loans. But since FHA is writing a significant number of loans these days, there will be more assumable loans available in the future.

Buyers beware: Even if the seller has an assumable loan, you still have to qualify for it. The lender will pull a copy of your credit history and credit score and verify your income. On the other hand, there are no maximum income limits (so, you can earn $1 million a year and still qualify to assume an FHA loan). And, as is the case with so much of real estate, you can expect to pay a fee to assume the loan.

Still, it's way cheaper than applying for a new loan.

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    Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.