By Chris Christensen
Special Commentary for the Hillsboro Herald
Date: August 30, 2023
For prospective buyers of the roughly 40,000 existing homes in Hillsboro in 2023, the pursuit of homeownership comes with unique challenges in today’s high-interest rate mortgage environment.
Higher interest rates can raise monthly mortgage payments, so generally, the lower the rate, the lower the payment. With national 30-year home mortgage rates approaching 8% in the era of “Bidenomics”, many prospective Hillsboro home buyers feel priced out of buying a home.
However, with a bit of creative thinking and cooperation, opportunity shines through assumable mortgages, particularly those offered by the Federal Housing Administration (FHA), Veterans Administration (VA), and the United States Department of Agriculture’s Rural Housing Initiative (USDA).
As potential buyers and sellers seek ways to navigate Hillsboro’s challenging real estate market, the benefits of assumable mortgages become an emerging focal point, promising advantages for both buyer and seller that can’t be overlooked.
Here Are 5 Ways Hillsboro Home Buyers and Sellers Can Leverage Assumable Mortgages for Success in A High Interest Rate Environment:
- Unlocking FHA Assumable Mortgages: A Path to Affordable Ownership
Federal Housing Administration (FHA) loans have long been favored for their accessibility and low downpayment requirements. In Hillsboro, where the home purchase process can be competitive, the assumability feature of FHA mortgages presents a unique opportunity for both buyers and sellers. Prospective homebuyers can inherit the original terms of the seller’s loan, including the low interest rate. This means that in a high-interest rate climate, new buyers can secure a home with a significantly lower interest rate than they might be able to obtain with a new mortgage. This could translate into substantial savings over the life of the loan, making the challenge of home ownership a more attainable goal for prospective Hillsboro residents.
- Veterans Reap Rewards with VA Assumable Mortgages
For the veterans who call Hillsboro home, the Department of Veterans Affairs (VA) offers assumable mortgages that come with a host of benefits. The VA loan program’s assumability allows veterans to transfer their favorable mortgage terms to another eligible buyer. Aspiring homeowners can tap into these VA loans, benefiting from competitive interest rates and the absence of a requirement for private mortgage insurance (PMI). In Hillsboro’s thriving community, where military personnel and veterans contribute significantly, VA assumable mortgages provide an avenue for realizing the dream of homeownership while saving on financing costs. Buyers need not be veterans to assume a VA loan, but entitlement issues may crop up for the seller, so always check with a VA housing specialist before agreeing to assume a VA loan.
- Seizing Rural Charm with USDA Assumable Mortgages
Hillsboro’s proximity to the lush Oregon countryside is one of its cherished attributes. For those seeking the tranquil charm of rural living, the United States Department of Agriculture (USDA) offers assumable mortgages designed specifically for rural and suburban homebuyers. In a time of elevated interest rates, the assumability of USDA loans stands out as an advantageous opportunity. Buyers can assume existing loans with attractive interest rates, which is particularly beneficial when aiming to secure properties in areas such as Hillsboro where USDA loans are prevalent
- Seller Advantages: Navigating the Selling Process
Sellers in Hillsboro’s dynamic real estate market can also reap rewards from the assumability of mortgages. When the terms of a mortgage are assumable, it enhances the pool of potential buyers. Assumable loans also potentially allow the seller to garner a higher sales price as a result of the mortgage advantages for the prospective buyer.
Seller Benefits of Assumable Loans
Assumable loans enhance home marketability if interest rates rise after origination. For instance, an assumable mortgage at 2.5% in a 7.5% rate market attracts buyers, making it more appealing than other traditional financing options.
Seller’s gain negotiating leverage due to lower rates on assumable mortgages. Buyers can allocate savings from reduced closing costs to their second mortgage, allowing sellers to command higher sale prices. This increased marketability can lead to faster property sales, ensuring a smoother transition for both parties involved. Sellers can leverage this advantage to attract buyers who may be discouraged by current high-interest rates, offering them a chance to secure a home at more favorable financing terms.
- Buyer Advantages: Easing the Path to Ownership
Prospective buyers stand to gain substantially from assumable mortgages in Hillsboro. With the cost of borrowing escalating, assumable mortgages offer an avenue to lock in lower interest rates, reduce upfront costs, and simplify the approval process. This allows buyers to focus on finding their dream home rather than grappling with financial intricacies. For first-time homebuyers or those with limited credit history, assumable mortgages can provide a stepping stone to homeownership that might otherwise be challenging to achieve in today’s market.
Buyer Benefits of Assumable Loans
Assumable mortgages potentially offer access to lower interest rates for prospective home buyers that might be unattainable in the present market. Assumption fees are capped by FHA, VA, and USDA, resulting in lower closing costs generally compared to new mortgages. Buyers might also be able to skip the appraisal, saving hundreds.
Drawbacks of Assumable Loans for Buyers
Higher Down Payment
Soaring property values can disrupt mortgage assumptions. When a buyer takes over a mortgage, it may not cover the higher home cost. For instance, if a $295,000 loan is assumed, but the home’s value surged to $375,000, buyers face having to make up the difference, often needing a second mortgage with increased costs and rates. The days of “piggyback” mortgages, “CLTV”, and of sellers “subordinating” or “carrying back” a second mortgage may be making a comeback.
Longer Closing Times
The time to process an assumption with the existing loan servicer can also be lengthy, 45-60 days on average compared to a more traditional 30-45 day closing period.
Assumptions require patience and cooperation between the seller, lender/servicer, buyer and agent to be successful. Since the buyer works with the seller’s loan servicer to assume the loan, any other mortgage brokers or bankers the buyer may have been working with also might get left out of the deal.
In summary, for prospective buyers and sellers of existing homes in the neighborhoods of Hillsboro, the notion of homeownership is challenged amidst the complexities of a high-interest rate mortgage environment.
Assumable mortgages offered by FHA, VA, and USDA may provide a ray of hope, offering both buyers and sellers a strategic solution in our dynamic Hillsboro real estate landscape. As our community navigates the path towards maintaining affordable homeownership, the allure of assumable mortgages shines brightly as a beacon of opportunity for prospective Hillsboro home buyers and sellers.