Look, assumable loans are basically eye candy in real estate because they’re so rare, but they’re actually starting to happen more. So, let’s talk about it. This post won’t go into details about requirements or how the process works, but I want to highlight this tiny but growing trend in the Sacramento region.
UPCOMING SPEAKING GIGS:
2/09/24 PCAR WCR Event (11:30am-1pm (more details))
2/13/24 Downtown Regional MLS Meeting 9am
2/19/24 Matt the Mortgage Guy YouTube Live
3/11/24 Yolo Association of Realtors (YAR only)
3/19/24 WCR Gold Country (details TBA)
3/21/24 2024 Market Update for Brent Gove Team (big event free)
3/26/24 Orangevale MLS meeting 9am
3/27/24 SAFE Credit Union Lunch & Learn (TBA)
4/11/24 Lindsay Carlisle Event (private)
4/25/24 HomeSmart iCare Realty (details TBA)
5/9/24 Empire Home Loans (details TBA)
5/15/24 Investor Meetup (details TBA)
6/11/24 Elk Grove Regional MLS Meeting 8:30am
6/13/24 Sacramento Realtist Association (details TBA)
WATCHING THE TREND & SPOTTING UNICORNS:
Loan assumptions are uncommon, but they are starting to happen more. For perspective, there were 23 reported loan assumptions in MLS in the midst of over 18,000 sales since 2023. I found these by exporting the “assumed” category under buyer financing for MLS sales. I do suspect there were more that were not reported too. All that said, half of these took place in the past 90 days, so this is something to watch while conceding they are still unicorns.
WHAT TYPES OF PROPERTIES ARE BUYERS ASSUMING?
The price point is all over the place, and these are not just starter homes. On average, units spent about four months from listing to closing, so this process has NOT been quick. Keep in mind, both VA and FHA loans can theoretically be assumed (and USDA), but the loan servicer still has to approve it. This is the hard part because approval is NOT always a given. This is why it can be such an uncertain process. I wrote more about loan assumptions here.
TELL ME MORE ABOUT THE SELLERS PLEASE
Ten of these units had an FHA loan and thirteen had a VA loan. The majority of sellers purchased in 2020 and 2021, but there were a number that bought much earlier, but they had refinanced when rates were really low a few years ago. In fact, one seller bought in 2016 and another bought in 2002.
HAVE YOU DONE A LOAN ASSUMPTION?
I’d love to hear any stories in the comments. Have you successfully done a loan assumption? Or have you tried, but it didn’t work? What made it work or not? Any insight you can share?
MORE IF RATES REMAIN HIGH
Here’s a look at buyer financing in the Sacramento region over the past ninety days. I’ll be watching this closely, and I’ll report on assumed loans in addition to everything else. If rates remain elevated, it’s possible to see more loan assumptions ahead. However, these could be more prominent during slower times of the year too. Anyway, we’ll see what happens this spring.
NOTE TO REAL ESTATE FRIENDS:
Loan assumptions are still unicorns, but today’s market requires creativity to get deals done, so this seems like something to know and watch. It’s also good to have some stats for buyers and sellers to see both rarity and that it has taken about four months. Anyway, keep your head down, keep learning, and find ways to be a part of the market that is happening. The only thing we can control is our mindset and how we show up.
ONE LAST THING:
I find when I bring up this topic, I tend to get some people bent out of shape because they think I’m saying it’s easy and common to assume a loan (sorry if you didn’t read the post). I think some would rather this topic not get brought up, but we are better off having conversations like this. In other words, let’s talk about the market that is happening – even the tiny parts.
Thanks for being here.
Questions: Any stories or insight to share? What stood out to you about the stats above? Should I keep pushing these stats out?
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Good information Ryan. I just closed my first ever true loan assumption deal. It was somewhat of a nightmare. Here is the thing you did not mention. Since there is no profit in it for the lender, they do not put any resources toward it. This lender only has 5 underwriters for the whole nation. I submitted a complete loan package day one, they asked for everything at least twice, and the purchase agreement 5 times. It took over 3 months to close and the lender scrutinized every little detail and was much more strict on budget than normal. However my client ended up with a 2.375 rate with bragging rights and 27 years left. So they were able to purchase a home that otherwise they could not afford at a 6% plus rate. Also note that it does take considerable cash down to be able to assume most loans and most will not allow any kind 2nd or seller carry back.
Thank you Rick. Nightmare seems to be the operative word. Your experience is definitely something I’ve heard from others too. Totally agree about lenders not having incentive. I wrote about that stuff in a different post that I linked to above. The current process reminds me of short sales in the beginning where lenders did not have much of a system in place, so it was a nightmare. I don’t think assumptions will grow to that level at all, but there is certainly some demand out there that isn’t being satisfied. Congrats on the assumption notch on your belt. That’s good to hear.
It’s definitely not as easy as it was being made out to be when it was becoming a popular topic on social media. I have a client who had a loan that was assumable at 5% and in the low $300s price point. I thought this was going to be unicorn for buyers and I was going to get a ton of offers…..and that was not the case. After almost two months on the market, we did start to receive offers, but none wanted to go through the process of assuming the loan because it is LENGTHY. The bank was saying it could take up to 6 months, and there are so many hoops to jump through. From the standpoint of representing the seller, it was difficult because you couldn’t get a true idea of whether or not the buyer was going to qualify for the loan based on the lender’s requirements. So if you accept an offer there’s no guarantee the bank is also going to accept the buyer.
Thanks Marvin. That’s sobering stuff. Six months? That’s a deathblow to moving forward. Imagine how much the market or rates can change in the meantime. Ha. I can’t imagine it takes that long on the lender side of things, but a timeline like this shows a sincere lack or urgency and priority. Thanks for sharing.
Great conversation and I like the comments above with personal experiences selling homes with assumable loans. Now, do the properties with the assumable loans sell for more? I’m guessing not because it’s such a pain, they earn the lower interest rate that they could have just bought. Kind of like sweat equity. LOL
Thanks Gary. You know, I think I used to always hear about assumable loans maybe being able to sell for more. I suppose we’ll have some stats to analyze at some point now that we’re in a market where assumable loans are happening a bit. On paper it sounds reasonable to pay more, but this is a train wreck process too that could mean no premium at all. Can you imagine hearing, “It will take six months, and it might not work”? But hey, the proof is in the stats…
But people waited for those Short Sales knowing the same possible 6 months. And right now they’re waiting for 6 months for rates to drop. This wait at least you possibly get at least a prize at the end of a 3% mortgage.
Fair enough. It’s still a tall order. But yeah, some will wait. The struggle is it’s going to require a combination of the right buyer and right seller to try this timeline out. It’s just not realistic to wait that long for many. But if it works, that is a treasure. For now, I’m excited to share some stats today, and my market antennas are up for this growing trend. Let’s keep watching.
Great topic, and good insight on how the process actually works in real life. Waiting on rates or prices to drop in real estate historically has not been a great play. If you can-buy now and refi if rates drop. Doing retrospective appraisals has opened my eyes to the substantial increase in prices. I should have bought a house when I was 16. In 1978, I could have bought a house for under $50K. I didnt, but thankfully I filled up a 10,000 gallon tank with 65 cent gasoline when I was in high school and dont have to pay $4+ a gallon for gas until that tank runs out. For those that dont know-that person on the right is Iggy Pop-google him, interesting character. Great visual Ryan
You missed the opportunity to buy, Mark. I really should have purchased while in middle school, but I was too focused on Def Leppard at the time. And I definitely should have bought an apartment complex in San Francisco prior to the tech boom, but I wish finishing up college. Haha. Thanks as always. Lots of “date the rate” type of advice over the past couple of years. The truth is it can work for some people, but it can also not work out at all. It’s very difficult to time prices and rates.
Great post, Ryan. Loan assumptions can be a major selling point in today’s market since rates are higher than they have been. I looked at my MLS and we don’t have an option for assumable loans so it may or may not be happening. I can see where there could be more if the market was more of a buyer’s market since this would entice a buyer to purchase your home over another one that did not have this option.
Thanks Tom. I found this as a subset under the “Buyer Financing” field in MLS. If you have it, then maybe there. I really think this is not entered all the time, but I can only do my best with information provided.