05/23/2022 – What’s Going on with the Interest Rates??

If you read some of my rantings, you may notice I don’t post as often as I should. But I thought I would give my thoughts on what is happening with today’s Real Estate Market.

I need to say first that ANY real estate market should be looked at individually. After all, what is going on in the National Real Estate market may not be necessarily going on in your market. Every market is different. The number of houses listed on the market varies, the number of buyers looking to move into a particular market varies and of course the “selling tactics” vary.  As a buyer you need to offer list price, you may need to make an offer above list price… there are lots of different markets.

So today I’m going to talk about interest rates.  At one point in my market interest rates were below 3% yes, I personally saw people getting 2.5% interest rates a few months ago. We all thought that would last, but in the past several weeks I am seeing interest rates for new loans over 5% A quick search says FHA interest rates today are 5.492%.

There is a way to get lower interest rates on a home you are buying.  In my area, because it is just about a rock throw from the USAF base in Jacksonville, many existing loans are VA loans (currently at 5.47%).  VA and FHA loans are assumable.

Sometimes USDA RD Loans are also assumable, but I have not looked at those closely enough and from some of my research the interest rate may be changed to updated rates. There is also the ability to finance the equity in another loan.

ASSUMING A VA LOAN

If you do a little research, you will find that VA loans are assumable. In the mortgage documents you will find some stipulations on how your loan can be assumed by another buyer. There are also things to consider for the seller, presumably a Veteran or Active Service Member, such as a “release of liability” for the original loan and the “substitution of entitlement”.  In simple terms, “substitution of entitlement” means that the Seller will have his full entitlement benefit restored to its original amount and the Buyer will have it subtracted from his.

Buyers for a home with a VA mortgage will still have to meet all the buying criteria of a VA Loan such as credit score and debt to income ratios and they will probably have to come up with a larger down payment depending on how much the Seller has paid toward his existing mortgage and the amount that the property has appreciated.

Another benefit may be that the buyer’s closing costs could be less when they assume an existing VA loan.  

A VA loan assumption can be a good thing if everything falls into place. It is something to talk to your lender and Realtor about.

ASSUMING AN FHA LOAN

FHA loans are also assumable. The same things apply for the Buyer, they must quality for the loan by having a good credit score and debt to income ratio. The seller also has to receive a “release of liability” from the current loan amount from the lender. This is very important to every seller.

MY FINAL THOUGHTS

As a Realtor, I’m constantly trying to update my knowledge in Real Estate to be the best possible agent to represent my buyers and sellers. Am I perfect, that’s a big fat-ass NO. But all Realtors are going to have to learn to navigate this new reality.

One place where I can see these assumption scenarios coming into play would be divorce situations where one party gets the house and the other party gets the shaft. Only half kidding.  Regardless, if the ex-spouse can qualify (for VA is a Veteran or Active Service Member) for the existing loan and pay the other party any equity that the court feels he/she is entitled to, then why not? Closing costs should also be reduced. Many times, one of the parties just wants to “get the house out of his/her name” so they can purchase another house and move on with their life.  Especially if his/her children will not have to move from their home.

Another situation is the death of a spouse.

Anyway, I’m sure there is a lot more to the process. At least more than I am including in this short writing. But way back when I was an agent in the 80s, when interest rates were above 13%, the best thing a seller could have is an assumable loan at 7%. 

Damn, I’m dating myself big time…  

I am not a lender and I am not a mortgage specialist or broker. I am not a lawyer. I am an old school, (but thoroughly modern ha!) Realtor and I sell houses. That’s the job I get paid for. But all of these things should be discussed and thought about since interest rates are jumping up when buying or selling a home.