The value of a loan that can be taken over comes from two places. When a buyer takes over a loan, it is often easier for them to qualify, and the payments may be lower than if they got a new loan. But two important things could make it less valuable. If the loan balance is very low compared to the price being asked, the loan may not be worth much. Either a big down payment in cash or more financing will be needed for the buyer to take over. This extra money could come from a loan from the seller. Second, there isn't much benefit to taking over an existing loan if the interest rate is close to or above the going rate.
How do you know if someone else can take over your loan? Most likely, you can take over an FHA or VA loan. Most likely, you won't be able to take over a regular loan. Look for a clause in your loan contract that says "due on sale." If it is there, the lender can ask for the loan back when you sell the house. There are conventional loans that can be taken over by someone else but have a slightly higher interest rate.
If the interest rate on your assumable loan is lower than the market average, you should get a higher price at the sale. Remember that you will have to pay more for financing when you repurchase. Giving up good financing is made up for by a higher resale price.
What does the loan cost? Think about the fact that, since the loan payments are lower, the buyer could pay more and still make the same amount of payments. Let's say your home is worth $100,000. You can take over a $70,000 loan with an interest rate of 8%. The time still has 25 years left. At the current rate of 10% for 30 years, the monthly payment on a new loan of $70,000 is $614.30. Your loan's payments are $540.27. The savings of $74.03 a month could pay off a loan at the market rate for 25 years. This would cost $8,147. So, a buyer who takes over the loan could borrow an extra $8,000 and still pay less than if they got a new loan. Whether or not you could get this amount out of the sale price depends on how the market is doing. But a loan that can be taken over by someone else is a great way to sell something in any market.
If you think you might sell your home soon, you might want to get a new loan with a high loan-to-value ratio that can be taken over by someone else. This will be a kind of insurance in case interest rates go up or it gets hard to get a mortgage when you want to sell.
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Write-up by (Tommy Lee). Visit http://www.smartrefinance.net to learn more about Finance and Refinancing Mortgage Loans.
